Yesterday there were new figures for the year to June 2011. They showed overall growth had slowed to just 0.1% in the last quarter of that year. They also showed that public spending had gone up by 1.3% in real terms over the twelve months.
When I first revealed the big cash increases in spending for 2010-11 and 2011-12 in the successive Red Books published by the Coalition, many ignored it, some argued that I needed to look at real terms and not cash, and some went on to assert there would be real terms cuts. I could not see how total current spending could be said to be falling in real terms, given the scale of the cash increases. Nor this year is it possible to see how the 3.8% cash increase should translate into a real reduction, as this year is meant to see a freeze on pay and better public sector buying. The official confirmation yesterday that real terms public spending has been growing is a welcome shaft of light which will doubtless be ignored by most commentators.
We need to examine carefully the government’s statistical way of calculating so called real terms spending changes. There seems to be a temptation to expect substantial inflation of public sector costs. This needs to be questioned at a time of self advertised pay restraint, and given the need to make rapid strides in productivity after a very disappointing decade for efficiency improvement. Having an intelligent economic discussion of how to fix the UK is not made easy by a refusal of most commentators and politicians to work from the actual figures.
I have been asked to comment on David Cameron’s speech. I thought it effectvely got over some messages. He is right to say this is a debt crisis, and you cannot get out of a debt crisis by borrowing too much. He wanted to inject some optimism, and did so by saying the UK can do it, can make it, can bring on a recovery. He spoke well on the topic of public sector pension reform, with passion on the need to end educational apartheid between the public and private sectors, and with sincerity about the important contributions some public sector employees have made.
I would have liked a clearer steer on how the UK will respond to the gathering Euro storm. I was also interested in his statements on public debt. He attacked Labour for spending £428 billion more than they had available in tax revenues. Some of that was recklessly borrowed in the good times. He did not remind us that the Coalition’s current plans are to borrow another £480 billion in five years. These figures are likely to be revised upwards in the autumn in the light of weaker growth.
It is important that in all the arguments about paying off the credit card the impression is not left that the government is now paying off the nation’s credit card. This particular piece of well used plastic is about to be flexed and flexed again. It is important people are told that. This is no slash and burn government when it comes to public spending. This is a government still borrowing large sums, knowing that it has to keep the markets on board with its deficit reduction trajectory and with the credit worthiness of the country. The economy is not slowing owing to a lack of fiscal stimulus.