Throughout all my time in UK politics public expenditure has grown. It has grown in cash terms, and in real terms after allowing for inflation. Whenever we have had a Conservative government Labour has campaigned endlessly about cuts, and has left the impression that total spending was falling when it was rising.
Today we have all three main political parties talking about deep cuts. Yet if you read the Budget forecasts for public spending they show that in every year in the period 2009-2015 public spending will go up in cash terms. Current spending will go up by £90 billion over the period, and current and capital spending combined will go up by £70 billion. There will be a substantial cut in capital spend. The capital cuts were the ones Labour incorporated into their Budget plans just before losing office.
The figures are:
Current public spending 2009-10 £600b
Labour’s case is that these increases in public spending require deep and damaging real cuts. That will only be true if wages and costs in the public sector shoot up by more than 15% over the time period, or if debt interest surges and eclipses everything else. If the Bank gets inflation down to 2% and keeps it there as it is meant to do, there will be small real increases in public spending over the five years on these numbers. They go on to say that they want to slow down the path of deficit reduction. In other words they don’t think we are borrowing enough. They would like more of our tax money to be spent on debt interest.
With tight but rising numbers like these the emphasis has to be on keeping all public sector costs down so the extra money goes further and does not just get absorbed into rising wages and prices. To control debt interest the government does need to reassure markets by showing it is bringing the borrowing under control. It can also avoid a big surge in debt payments by selling more assets to pay for some of the shortfall.
It is difficult to argue sensibly that the pace of deficit reduction is too rapid. On the Budget figures the government will borrow an additional 10.1% of National Income this year, a further 7.5% in 2011-12, and an additional 5.5% in 2012-13. These are huge figures. Our total government debt (measured on the Treaty basis in the Red Book) rises from 79% of GDP in 2012-11, to 84% in 2011-12 and to 86% in 2012-13. Labour’s plans to have a larger deficit for longer would make these bad figures even worse, run the risk of losing confidence in UK government debt which would increase interest rates, and would absorb even more of our tax revenue in paying debt interest.
The Coalition said it would cut the deficit by relying on lower spending for 80% of the deficit reduction and higher taxes for 20%. However, in the first three years of the programme higher taxes do more of the work. 41% of deficit reduction this year, 43% next year and 36% the year after is carried out by higher taxes. The government has to be careful lest its higher rates of Income and Capital Gains Tax result in lower rather than higher revenues, and reduce the growth rate which is important to success.
So why then is there talk of cuts at all? The first reason is the government inherited wildly optimistic plans for increased spending, which have to be cut back to produce a credible budget. The second is Whitehall’s reluctance to accept they can keep costs down and do more for less in core areas. The third is the sensible wish to cut out things that are less desirable or unwanted, from ID cards through regional government to a host of quangos.
The main reason is the continuing absurd political debate we have continuously in the UK about cuts, with parades of inappropriate, worrying or plain wrong cuts in spending in substitute for good public sector management. It was always thus. The figures are more reassuring than the language.
The Coalition government should start to change the way it presents all this. It is worrying some people needlessly about their public services, and it is allowing bad public sector managers to get away with frightening people about the impact of revenue numbers which any business would regard as acceptable and capable of decent management. I see no need for cuts in any public service that matters on these figures. I also expect that when we get to the last two years of the period the government will increase its spending plans still more, as an election draws near.