The problem with Plan A, the government’s June 2010 Plan to get rid of the deficit this Parliament, was it relied on a big hit on the private sector. The Plan was to increase cash public spending over the five years, and to pay for the extra spending and get rid of much of the inherited deficit at the same time by a huge tax increase. It was tax and spend on a vast scale.
It was misrepresented by many commentators as a big cut in public spending – because the original plans were for an even larger cash increase in public spending. Austerity was not visited on the public sector in the way it was on the private sector. Even now, during a wage freeze in the public sector, public sector wages are going up faster than private sector wages.
Now we hear endless arguments about sticking to the Plan. I do not know why. The government abandoned the Plan shortly afterwards. We are well into Plan B, which has delayed cutting the deficit because they now realise they will not get all the extra tax revenue they wanted. We are also into Plan C, a plan based on an attempted large increase in capital spending, the one area they did cut at the outset, based on Labour’s planned cuts.
Before people can comment sensibly on what the Chancellor should do next to rescue some growth, they need to understand what has happened so far. It is silly having to field interviews based on the false premises that they cut public spending, and that they are sticking to Plan A. This week I will be looking at the options for the Budget in more detail. I will include inflation and energy prices, banking and credit, public current spending, capital spending, and taxes.
Plan A June 2010
Total Spending 2009-10 £669bn 2014-15 £737bn (plus 10.2%)
Total tax revenue 2009-10 £479.7bn 2014-15 £656.5bn (plus (plus 36.9%)
(Red Book Budget 2010)
Plan B December 2012
Total spending 2009-10 £669bn 2014-15 £731bn (plus 9.3%)
Total tax revenue 2009-10 £479.7bn 2014-15 £604bn (plus 25.9%)
Green Book (Autumn Statement 2012)
Add a £50 billion Infrastructure funding scheme to the cut level of capital spending in the original plans.
Plan B accepts a revenue shortfall of more than £50bn a year by 2014-15 compared to Plan A, leaving a much larger deficit and more borrowing.