The “cuts” so far – why don’t the BBC get it that total current spending is rising?

We now know the broad shape of the public spending decisions to be unveiled this week. They are:

Health spending – up in cash and real terms
Schools spending – up in cash and probably in real terms
Contributions to the EU – substantially up thanks to loss of part of the rebate
Overseas Aid – up in cash and real terms
Benefits spending – all benefits to be increased in line with inflation
Pensions – to be increased by more under a new system which includes an earnings link
Equitable Life holders – £1.5 billion of compensation not in previous budgets
Debt interest – up substantially, as this government plans to add £450 billion to the public debt over the five years of this Parliament.
Child Benefit – to be removed from people on c. £40,000 a year and above to save £1 billion a year after 2012-13.

This morning the BBC announced that schools spending was likely to go up. You could have read that here on this website, forecast at the beginning of the public spending process. Given the increases in overall cash spending it seemed very likely that Schools would join Health as a priority area for increases.

Instead of seeing it was bound to be given the overall figures, the BBC spent the morning on the Today programme asking what extra would be cut to make room for this surprising generosity. They never once considered that several areas of spending have to go up to use up the increases in total spending that have already been announced!


  1. Dave Cherling
    October 17, 2010

    There seems to be an ever lengthening list of "ring fenced" departments, MOD being the latest, makes you wonder what they will cut other than benefits and pensions. Obviously they are much less important than fighting illegal, immoral wars in countries that are absolutely no threat to us.

  2. StevenL
    October 17, 2010

    Looks like a case of plan a) GDP growth plan b) inflation

  3. REPay
    October 17, 2010

    I am not surprised as the BBC is essentially part of the opposition. We keep hearing 25% cuts as though this were now and across the board.

    The government, instead of its reflex PR man's short term approach should be producing facts and figures and visuals that will spell out what will be happening. This is an opportunity for George Osborne to take the wind out of the sails of the opposition…I remember the 80's when Labour did nothing but whinge about the "kootz" and managed to convince many gullible people (50% of the population and the young) that the Tories destroy jobs (i.e. Thatcher shut down the mines (sic)) and attack the poor. The Tory party foolishly disowned the 80's and 90's which were, with some ups and downs a period of regeneration.

    Mrs. Thatcher was robust and clear in explaining what she did and why. The coalition lacks that clarity – though I support the ballsy way they are going about it. Can they get more strategic in their narrative please!

  4. Alex_Sabine
    October 17, 2010

    John, you've certainly been very persistent in (correctly) pointing out that total cash spending is forecast to rise in each year of the Parliament. But we need to crunch the numbers a bit more to understand why the government itself – and not just the BBC but every media outlet you choose to name – is talking of "cuts" rather than "limited rises".

    First, let's have some historical perspective. Total managed expenditure has risen in cash terms in every year since World War II, with the sole exception of the 1947-48 fiscal year under the Attlee government when the economy was completing the transition from wartime mobilisation to peace (which allowed huge, painless and popular cuts in defence spending).

    Total cash spending has risen even in years where there were significant real-terms cuts, as in 1977-78 (when the IMF-led squeeze was severe, but of course inflation was very high), 1985-86, 1988-89 and 1996-97.

  5. Alex_Sabine
    October 17, 2010

    So for it to fall during a period when we are expecting some economy-wide inflation to persist even if the Bank of England hits its 2% target, and when debt interest payments are set to more than double, would be a remarkably tough policy. Indeed, arguably it would require a degree of courage (in the Sir Humphrey sense) that no democratic government can be expected to show except in the event of an all-out gilt strike and funding crisis.

    Instead, total managed expenditure (TME) is projected to rise as follows:

    2010-11: £697bn
    2011-12: £700bn
    2012-13: £711bn
    2013-14: £722bn
    2014-15: £738bn
    2015-16: £758bn

    So, over the period 2010-11 to 2015-16, public spending is set to grow by £61bn or 8.75% – an average increase of £12bn or 1.75% per year.

    Now, of course these are the *cash* figures. If inflation exceeds 1.75% – as experience suggests it will – then there will be a small real-terms cut in total expenditure.

  6. Alex_Sabine
    October 17, 2010

    If inflation averages 2.5% over the period (as the OBR's forecasts for the GDP deflator indicate) then the cash rise translates to a real-terms cut of a little under 1% per year, or a cumulative 4%. The scale of that real-terms cut clearly isn't unprecedented for a single year, but to sustain it for five years is (at least since the war).

    If that was the end of the story, then I'd agree that all the talk of severe cuts was exaggerated and alarmist. But of course it isn't the end of the story, because it neglects to look at how the composition of spending will be affected – and, crucially, the extent to which spiralling debt interest costs will crowd out productive public spending.

    Partly as a result of the decision to protect pensioners, social security spending is also set to carry on rising in real terms.

    The result is that overall departmental spending is going to be cut, not only in real terms but in cash terms too.

  7. Alex_Sabine
    October 17, 2010

    These are the figures for resource DELs (ie departmental current spending):

    2010-11: £342.7bn
    2011-12: £343.1bn
    2012-13: £341.4bn
    2013-14: £341.2bn
    2014-15: £337.7bn
    2015-16: £340.0bn

    My point here is not that the strategy is wrong. I agree that spending needs to be cut in real terms as the coalition plans. Indeed, I would consider going further and freezing total spending in nominal terms for five years (which would mean larger real-terms cuts, and dropping more sacred cows in middle-class welfare, defence and NHS spending).

    But let’s not pretend that this is other than a major austerity programme. The public sector needs to adapt accordingly, and the government naturally wants to prepare the public for the effects also.

    Reply: DELs are only around one half of public spending. I look at total spending, as that determines how much we need to borrow, and includes the several important areas where spendign is going up.

    1. Alex_Sabine
      October 17, 2010

      Indeed, DELs currently make up 55% of total spending. In 5 years' time that proportion will have shrunk to 48% – AME (social security, tax credits, debt interest costs etc) will have overtaken DELs as the largest component of total spending.

      That is a significant shift in the composition of public expenditure: DELs look set to fall in cash as well as real terms, while AME will continue to grow due to rising debt interest costs and social security spending.

      I agree that total spending is what matters in terms of the borrowing requirement and debt level. But in terms of the departmental negotiations in the Spending Review, DELs are much more relevant, which is why there has been the need to apportion cuts between departments.

      And in terms of people's actual experience of public services, the fact that we're going to double our spending on debt interest payments does not change the fact that many of the services people use are going to have their funding cut for the first time in decades.

      But on the general point, I agree that a sense of proportion is important. This is manageable, but there will be real cuts in some areas.

  8. James Clover
    October 17, 2010

    I'm afraid the coalition is terrible at spin- normally a saintly attribute, but in face of a snidey BBC and a population that is fixed in its idea of Wicked Tories, something they need to be concerned about. They do, alas, give an impression of dithering and uncertainty, trying to appear tough and then stepping back whenever the usual cuprits start to shriek.
    Clear, simple oft-repeated mantras, and an appearance of calm certainty- that's what they need.

  9. Lottery balls
    October 17, 2010

    Never let the facts spoil a good story. We all know the BBC's agenda which is almost always for increased state expenditure. The government paying people to do entirely pointless things will avoid a double dip recession says the BBC.

    A typical story might be "Do you know that even the very young. the elderly and disabled are legally allowed, even today in the UK, to go the the toilet and eat & breath with no statutory training or even licensing what on earth is the government minister going to do about this terrible state of affairs?

  10. Ross J Warren
    October 17, 2010

    To be fair to the BBC, when everyone including our increasingly Tory sounding chancellor are “bigging” up “cuts”, it is hardly surprising that nobody is hearing your still small voice.

    So how should we be spinning this John?

    Should we be talking instead of redistribution?
    Hardly Conservative language, and what of the many losers, who most certainly have less money in their pockets, they will certainly feel cut.

    Sadly “Cuts” make sense and make for an easy dialogue, and everyone knows that inflation means more money in simple numeric terms must be found. Lets just be grateful that so far nobody has suggested further QE to sort out our insignificant balance of payments problem. We might as well complain that a Billion is in fact nothing of the sort. Wouldn’t our debts look smaller if we insisted on the use of imperial billions rather than European and American ones?

  11. Iain Gill
    October 17, 2010

    if I were you as a conservative MP I would be keeping quiet about the overseas aid, its THE most unpopular financial policy on the streets, it makes a total mockery of this place supposedly being a democracy, up there with the English paying for prescriptions while everyone else gets them free

    1. Ross J Warren
      October 18, 2010

      Not universally unpopular though Iain. After all how do we make friends and influence people if we have nothing with which to grease the hands of foreigners?

      Frankly international aid is peanuts. However I do think we need to rethink the claw back of housing benefit, pettiness now will only encourage disorder in the inner cities where such a cut will certainly be resented.

    October 18, 2010

    Our blog on Saturday seems to have missed out so we're posting it again below.

    Incidentally further to the link problem you mentioned last week, for most of yesterday we could get a link only to a hosting site (headed John Redwood) when we tried to log on in the usual way. It reverted to normal last night.


    October 18, 2010

    Sorry we meant Sunday not Saturday.

    "In fairness it's not just the BBC getting the wrong end of the stick although, heaven knows, if anyone is going to rain on the new government's parade it will be the Beeb!

    No – the widespread accepted wisdom is that severe cuts are in store and we can't quite see on the evidence that you summarise her how or why the Government has allowed this misconception.
    You were the first and one of the few so far to go into the detail of the red book but we can only conclude that the cabinet WANT the draconian view to prevail. Why?"

    By the same token ARE they taking the right steps to rectify matters after the years of Labour waste and ineptitude? Having read through the relatively mild Quango 'cull' (admittedly only a first phase perhaps?) we do seriously wonder if DC and team have lost their nerve.

  14. John
    October 18, 2010

    Go to the BBC News website. Find thier special site covering the spending review. Articles on cuts, opinion on cuts, interviews on the cuts, Nick Robinson on cuts, Stephanie Flanders on the cuts to child benefit, Robert Peston having an irresistable dig at the business leaders who have today written in support of the Government's policies.

    What a shame that nowhere is there an article spelling out in the same gratuitous detail how great the current level of Government debt is, how large the annual spending deficit is in real terms, how much money the Labour Government printed, borrowed and taxed and still could not balance it's P&L.

    No mention either of the interest being charged on this debt, the risk that our economy will collapse, no attempt to convert the simply stupendous sums involved into a realistic statement of the individual debt we all owe (although plenty of coverage of how cuts will impact individual lives of public sector workers)

    BBC News seems incapable of providing even a single balancing argument to the endless "how bad are the cuts" headlines.

    The BBC's coverage is an unbalanced disgrace. It's about as lopsided as Gordon Brown's budgeting, but then we should probably expect that some a publicly funded organisation which has never had to earn it's way in the world. Like Labour, they just feed off the taxpayer and assume the well of money is bottomless.

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