An answer to the Independent

 

   The Independent today tells its readers that the public sector austerity is big and long lasting, without precedent in the UK. They do, however, acknowledge that my claim is true  that for the first two years of the Coalition overall current public spending has been rising in real terms. That is progress.

 

They suggest I am being unfair in my presentation. They point out that capital spending has been cut. I have never denied that. They should remember however, that it was cut by the outgoing Labour government.  They should call them the Darling cuts, not the Osborne cuts as they do. The incoming Coalition government  abated the capital cuts a little as they thought them too severe. Total public spending carries on rising in cash terms despite them.

 

They then point out that from next financial year there will be real cuts in current spending. Again, I have never denied that the government believes that. Cash spending goes up, but the government thinks costs will also rise more.  The largest real cut is scheduled to take place in 2014-15, election year. Time will tell if these plans are fully implemented. I am glad to have the Independent’s confirmation that so far there have been very few cuts outside the capital spending area, that the cuts are mainly all to come, and so far deficit reduction has relied on higher taxes.

 

It also remains the fact that as cash spending will continue to rise there will only be real cuts if we experience too much  public sector inflation. There are choices to be made on that by managers and  employees over pay and by suppliers and buyers over prices.

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30 Comments

  1. Caterpillar
    Posted April 4, 2012 at 9:26 am | Permalink

    Paragraph 3.71, page 64 of OBR March 2012, has already revised down its forecast for government consumption inflation, in light of figures to date.

  2. Posted April 4, 2012 at 9:51 am | Permalink

    I presume you have sent this article to the Indrpendent. If aiming at political independence they will wish to print it as an alternative view. It will be interesting to see if they do.

  3. lifelogic
    Posted April 4, 2012 at 10:20 am | Permalink

    Expenditure cuts in the election year sound rather unlikely. So tax, borrow and tip down the drain continues. Is that not perhaps “morally repugnant” when the money could clearly do so much more good for the country and individuals if just left with the voters/taxpayers to use wisely?

    Most things governments describe as “capital” or “investments” are not really investment on any rational analysis. Do they think wind farms are “investments” or PV house bling? Or “loans” to the pigis?

    • stred
      Posted April 4, 2012 at 4:08 pm | Permalink

      As far as I understand, the wind farms are paid for by an additional ‘tax’, not included as public spending but added to power bills.

      Today, there was a very enthusiastic city whizz on R4 extolling the merits of a Privately Financed Initiative to improve the behaviour of prisoners. If targets are achieved, the company will expect to make a modest 5% at todays rate, plus expenses presumably. As with previous PFIs, HMG could borrow for less but is unable to show the expense on the balance sheet. If this catches on, the £100k per citizen will need to be increased.

      Any suggestion that prisoners should be kept apart in cells and only visited by non- criminals is unthinkable. Imagine the leeway in setting targets and rewards within the schools for crime that the prisons service runs at present.

      • stred
        Posted April 5, 2012 at 7:53 am | Permalink

        The proposal was not referred to as a PFI, but in effect it is the same. Hire Purchase of management on the Never Never.

    • alan jutson
      Posted April 4, 2012 at 4:36 pm | Permalink

      Lifelogic

      Brown used to call borrowing an investment !!!!!!!.

      I see his own charity seems to be doing rather better than the country under his management, according to reports.

      • Vimeiro
        Posted April 4, 2012 at 7:13 pm | Permalink

        That’s because it’s very easy to be free with somone elses money.

  4. norman
    Posted April 4, 2012 at 10:34 am | Permalink

    You learn something new every day – I had no idea The Independent was still a going concern.

    Isn’t it free now though? As in price, not intellectual stimulation.

    • lifelogic
      Posted April 4, 2012 at 8:59 pm | Permalink

      There always seems to be plenty of unwanted free copies lying around – I assume it is just supported by state sector job adverts, like the Guardian perhaps or some other state sector subsidy. I am always suspicious and anything that feels the need to self claim independence they rarely ever are.

  5. AndyC71
    Posted April 4, 2012 at 10:51 am | Permalink

    I fear this government has long lost its opportunity to actually cut public spending, instead of pretending to. Instead, it’s more tax, more spending, more debt, pretty much forever, as far as I can see. When, for example, does this government actually envisage running a surplus?

    Taxes – for all, not just certain groups – should be cut, and spending cut further. Then we may just see a little bit of economic growth. This government instead seems to quietly buy the Brown/Balls line that public borrowing equals growth, egged on by an illiterate media.

  6. Brian Tomkinson
    Posted April 4, 2012 at 12:06 pm | Permalink

    JR : “It also remains the fact that as cash spending will continue to rise there will only be real cuts if we experience too much public sector inflation.”
    Therein lies the problem. We have a government which, despite all its talk, is more interested in tax and spend than reducing their spending. Who will they blame for the £1.5 trillion debt at the next election – Gordon Brown? They have squandered the chance to sort out this country’s finances and consequently condemned themselves to being a single term government.

  7. Yosarian
    Posted April 4, 2012 at 12:08 pm | Permalink

    I don’t get all this talk about spending in real terms. It seems another difference between the public and private sectors. In the private sector, a cut means an absolute reduction in spending. In the public sector an increase in spending below the level of inflation seems to be considered a cut as well. I think the inflation related discussions are a snare and a delusion. Who thinks that if we ever had deflation of -2% that public spending of -2% would be described by the recipients as maintaining spending not cutting?

  8. Posted April 4, 2012 at 12:47 pm | Permalink

    John I think your concerns regarding this government’s ability to successfully lead us through austerity are very valid because we have so little confidence in those who are making the tough decisions.

    So how do we generate leadership we can respect in adversity? It’s worth looking to history. During WW1 disatrous decisions were made by those in authority and both the public and those fighting the war lost confidence in them.

    So Churchill resigned from his post and went and served back in the army as a Lt. Col. on the Western Front. (http://en.wikipedia.org/wiki/Winston_Churchill). It was in doing this he gained the trust, respect and greater public confidence he would need to lead this country through its greatest adversity.

    We will need such leadership going forward and this government should look to those who can provide it and recognise that many currently in authority cannot.

    • Susan
      Posted April 4, 2012 at 3:25 pm | Permalink

      Rebecca,

      That would not really be a fair comparison. Yes Winston Churchill was a great wartime leader but peace time is very different. In the years that separate Winston Churchill and David Cameron the UK has become a very different place. It was much easier for Mr. Churchill to have the goodwill of the people because it was a cause which the public believed in and were prepared to fight for. Mr. Cameron does not have the backing of all his people.

      The closest comparison that can be made, in recent times, is with Margret Thatcher who again did not have the backing of all her people but was a great leader.

      • Posted April 6, 2012 at 8:06 am | Permalink

        Do you not think Gove would have more change of commanding the repect of those in education through times of hardship and change were he to go and lead a bog standards comp in a tough area well?

        And would Francis Maude’s comments about the parallels between his pay freeze and the problems of those on benefits not be more credible were he to surrender his substantial personal wealth and go and live on benefits with his family?

        You see the extent to which these men are generating class and Westminster hatred through their ignorance about real life is vast and I think that needs to stop if we are to take the journey through austerity without hatred and violence.

        You see, Susan, I was on the receiving end of the violence caused by the ignorance and arrogance of underqualified people in authority last time. I haven’t forgotten what caused it. We need people who are personally credible in power to lead our country through austerity.

        I agree with you that we could simply replace those who are not up to the task with better people but there’s something about the British that likes to see the initial failure face their demons and come through.

    • Max Dunbar
      Posted April 4, 2012 at 4:13 pm | Permalink

      It may be worth reading the diaries of Sir John Colville who was Assistant Private Secretary to Churchill later in the war. His diary entry for Friday the 10th of May 1940 reads “…if the P.M. does go I’m afraid it must be Winston” and “…but it is a terrible risk, it involves the danger of rash and spectacular exploits”. Also, “Everybody here is in despair at the prospect”.
      It is worth bearing in mind that Churchill had recently been largely responsible as First Lord of the Admiralty for the Norwegian debacle during the latter stages of which we lost an aircraft carrier to units of the German surface fleet with great loss of life. Nevertheless, Churchill was a man of his time and his superb abilities as war leader far outweighed his questionable strategic military competence.
      On the subject of our present leadership requirements would Margaret Thatcher not be better qualified as an example of a brilliant peacetime as well as war leader?

  9. JimF
    Posted April 4, 2012 at 2:28 pm | Permalink

    Well done you for reading the Independent!

  10. nonny mouse
    Posted April 4, 2012 at 3:10 pm | Permalink

    Labour moved capital spending forward during the recession. That imples lower capital spending in the years after.

    The whole point of stimulus is that you give it when it is needed (i.e. the economy is shrinking uncontrollably) and you take it away after it has done it’s job. When you do take it away then growth is slower than it would otherwise have been.

    The left seem to think that stimulus is something permanent. That is not called stimulus, that is called higher spending and requires endless borrowing and leads to bankruptcy.

  11. Mike Stallard
    Posted April 4, 2012 at 3:23 pm | Permalink

    Look, I am old enough to remember the 1950s. We had just taken part (successfully) in defeating the three headed monster of fascism and we were all proud to be British and quite ready to repay the loans which we had taken out to support our troops abroad. It wasn’t fun. But we were proud.

    This time round, we are just as heavily in debt but, it seems, for no reason. The national debt is ballooning and there is a deficit – a thing which, in our private lives, we would never even consider. Our savings are being deliberately destroyed to pay for all this with QE. Our interest is being deliberately destroyed to allow the government to borrow more. Tax is ridiculous as you said yesterday. The State is growing fast in terrifying ways.

    We “peones” at the bottom of the pile are getting restive. It just seems so pointless. We seem to be getting nowhere.

    • A.Sedgwick
      Posted April 4, 2012 at 5:43 pm | Permalink

      We will continue to get nowhere whilst the majority leave their brains outside the polling booths.

  12. BobE
    Posted April 4, 2012 at 7:13 pm | Permalink

    NO CUTS!! What!! Food, Fuel, VAT have all combined to create an income cut, accross the board. Savings earn nothing whilst inflation wipes out the capital.
    There have been massive cuts, by stealth, mostly affecting the lower paid and pensioners.
    No wonder the Lib Dems lost their deposit at that bye-election. Ta Ta Lib Dems, oblivion awaits you.

    Reply: I am talking about spending cuts, not cuts in individual incomes after tax.

    • Bazman
      Posted April 5, 2012 at 6:12 am | Permalink

      Or in incomes before tax by companies seeking to increase profits.

  13. Lindsay McDougall
    Posted April 5, 2012 at 2:01 am | Permalink

    Only prophets of doom like Liam Halligan and myself have called this recession right. I give honourable mention to John Redwood’s analysis suggesting that 38% of GDP is the limit of the amount we are willing to pay in taxes. So, one more time then:

    (1) Since the recession was caused by the bursting of property bubbles at home and overseas – and the sudden realisation that a lot of paper assets, including many held by banks, were toxic – there never has been any reason why there should be above average GDP growth in the recovery phase.

    (2) If 38% of GDP is the limit of the total tax take, then public expenditure is not just slightly too high but miles too high. Plan B has to be tougher than plan A, not laxer.

    (3) The Prime Minister’s ring fencing of EU spending, foreign aid, NHS expenditure and some benefits has, to put it mildly, not been helpful.

    (4) Public sector pay is still 8% higher than private sector pay. So freeze the former until the balance is restored and break any trade union agreements that need to be broken.

    (5) There is no case for index linking any benefit paid for not working.

    (6) Inflation is not beneficial. Get a new Governor of the Bank of England and MPC to target zero inflation. End QE.

    • Electro-Kevin
      Posted April 5, 2012 at 9:22 am | Permalink

      “Since the recession was caused by the bursting of property bubbles at home and overseas …”

      I don’t wish to be pedantic but everything is being done to prevent the property bubble bursting at home.

      We’ve chosen a never ending catastrophe over a catastrophic ending, in other words.

      You are not a prophet of doom btw. Merely being realistic in my view.

  14. Bernard Otway
    Posted April 5, 2012 at 7:19 am | Permalink

    What ? is the Independant,s agenda ,I think it is the same as the Guardian and ALL leftspeak
    in my mind they are but an amalgam of TASS and PRAVDA which I named TAVDA during a blazing fight with a newspaper editor in South Africa,who bravely stood up to P W BOTHA
    during Apartheid and then Cravenly capitulated to the lefties in the ANC after 1994,I even gave him an alternative name of PRASS just for variety.

  15. stred
    Posted April 5, 2012 at 8:00 am | Permalink

    The reliance on inflation to create ‘real’ cuts may explain the forcast rise in the last 2 years of office. Perhaps, following the inflation/devaluation after previous money printing has given the Treasury/BoE better forcasting models and they can work the fiddle more confidently, while keeping their inflation linked pensions, bonuses and credit cards.

  16. peter davies
    Posted April 5, 2012 at 8:16 am | Permalink

    As you pointed out in a previous article the strategy of increasing spending in the first couple of years of government followed by reductions in the last half of this term seems a strange one – one that I didn’t know was the case.

    All this nonsense spouted of by Labour and the Unions of ‘too far and too fast’ has been clearly just that. It shows what a dangerous proposition having Ed Balls as chancellor would be.

    For some reason I thought it was a 20% real cut spread over 5 years – clearly I did not check out any figures.

    I personally would have culled and privatised the public sector as far as possible in the first half of the first term giving those affected huge payouts way over the odds so they have a chance to retrain and do something valuable with their severance, i.e pay off mortgages or start something new – effectively spending now to save huge costs later.

    The second part of the term could have then be used to get things into shape and popular again.

    It worries me that the gov’t is going to shoot itself in the foot in their last term with these cuts by delaying them so far thus allowing the keft back in to resume their havoc – this deficit issue could have been almost sorted out by now, we haven’t been in a war – just through a reckless period of spending and bank regulation.

    • Max Dunbar
      Posted April 5, 2012 at 11:10 am | Permalink

      Cuts yesterday and cuts tomorrow but never cuts today.

  17. David Langley
    Posted April 6, 2012 at 11:55 am | Permalink

    I can face cuts when I know we are spending our money on the appropriate things. What really irks me is the fact that we are throwing money away on unwinnable conflicts like Afghanistan, and I am not convinced by the governments case about our security needs. The usual moan about Foreign aid whilst ignored by the government still gets me down and last and not least of course the EU Project net contribution.
    When that lot is added up we could contribute a lot more to the common good.
    The Government mandate seems to extend to whatever they feel will give them good media coverage. The presentation of continual idiotic things like hot pasty tax and the pension confusion cannot do anything for our morale. Are we fiddling while Rome burns?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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