Next week’s Autumn Statement is about how to divide up the planned overall increases in public spending. Just to remind readers, the Chancellor plans to lift total public spending from £735 bn last year to £804 bn by the end of this Parliament. That’s a total rise of £69 bn in cash terms. Inflation is currently zero. To ensure this increase gives us a good real increase in spending it is of course important to keep public sector costs down, just as the private sector is having to do in very competitive world markets.
Public spending rose again in cash and real terms last month, and for the year as a whole. When will all the austerity mongers accept that total public spending is rising, and has been rising modestly since 2010?
This time the increase is led by capital spending, but also includes rises in pensions, health, schools, overseas aid and European contributions. Over the Parliament as a whole a number of high spending priority areas will be given extra cash, so the Chancellor needs to find savings elsewhere to stay within the agreed increased totals.
As a result borrowing rose compared with the same month last year, and is leaving the government with a difficult task to keep borrowing down to the limits set in the last budget. As always, the strategy of cutting the deficit rests largely on rising tax revenues. This time corporation tax was not as buoyant as hoped. This is not surprising, given the collapse of revenues in the commodity and energy areas, the continuing reductions in types of banking activity as the regulators squeeze banks more, and the very competitive conditions in areas like retail.
All this provides the backdrop for the Spending Review to be announced next week. I am looking for some abatement of the proposed reductions in tax credits, as the cuts in these benefits for the lower paid need to follow wage growth and tax cuts, so people are not worse off as the changes come in. There is considerable comment about how the elderly are better protected with the reforms to the State retirement pension offering a better deal with rising real pensions and all the universal benefits guaranteed by Manifesto promises, compared to younger people in work. Maybe the Chancellor should carry his reform of public sector pensions further, to limit future rights to accrue more entitlements under favourable past provisions. Maybe he needs to look again at the state retirement age, as on average people are living longer and staying healthier for longer, meaning an unexpected increase in total pension payments as well as great news for us all that on average we will live longer.
There are parts of the public sector which I have highlighted here which could do more for less. The two that spring most readily to mind are Housing Associations, and Network Rail. I trust there will be new proposals on their financing, to provide better value for taxpayers money.
The reporting of the Spending Review will doubtless follow the usual Labour line of highlighting apparently large cuts in the unprotected programmes, taking a five year percentage decline in real terms or against previous budget. Few commentators will point out the modest cash and real increase for the period as a whole for total spending , or remember the rises in some of the protected programmes. Most years I have been in Parliament the stories about public spending have been about the “cuts” yet every year total spending has gone up. Industry cuts its costs every year, doing more or the same with less. The possible gains in the public sector from applying modern technology could be substantial.