In the year to March 2011, the first year of the new government, current public spending rose by a little over 5% in cash terms. Contrary to all the stories of big cuts to come, it will continue to rise in cash terms for the rest of the 5 year plan.
There are two things to note about the rises. The first is, the rises are biggest in the early years, and toughest in the later years. The second is, the government increased planned spending for later years between the June 2010 and March 2011 budgets, showing the figures are not cast in stone.
The pace of the increases is curious. On the red book figures curent spending rises by 5.3% in Year 1, 3.8% in Year 2, 2.0% in Year 3, 1.9% in Year 4 and 1.8% in Year 5. I can understand lower figures for the middle two years of the strategy, as these are the years of the pay controls, and the years when the full benefits of buying better and cutting bureaucracy should be materialising. The last couple of years when the pay freeze comes off and the government is in the run up to an election you would think might be years of faster growth in current spending than 2011-13.
The substantial increase in Year 1 is also surprising. I appreciate it takes time to get on top of programmes, and some expenditure was contracted in advance by the outgoing government. It is usually best when undertaking a financial turn round to hit spending from the very beginning. It is easier to relax your grip than to come back for a second round of reductions in plans.
The other curious thing is that the public sector scores these cash increases as real cuts. As inflation is meant to average just 2% on the government’s own target whilst the spending increases average 3% you would have thought this would represent small real growth. When you add in a two year pay freeze for most public sector pay, better buying, and a big back to work programme to take people off benefits you would hope that a 3% per annum increase in spending would get you some real increases in service.
It is true that interest payments go upwards as a result of the extra borrowing. This only squeezes other spending badly if interest rates take off, not something assumed in the forecasts.