Earlier this week we saw the May figures for UK spending, tax revenues and borrowing. The figures are complex and have taken me a little while to understand, as there are so many special factors at play.
In April-May this year current public spending is 6.2% higher than in April-May the previous year. The leap was large in April, with current spending at £62.2bn compared to £53.2 bn a year earlier. The explanation given is more rapid payments to local government. I cannot find a figure to compare between years allowing for timing differences in these grant payments. It does mean, however, Councils received a large cash flow injection in April. The benefit bills are rising much less quickly than a year earlier, as this year’s uprating is less than half the previous year’s 5.2% rise.
Receipts are well up, mainly owing to two special factors. The first is the Treasury now receives £3.9bn a month from the Bank of England’s Asset Purchase scheme. The second is the Treasury has taken a credit of £3.2bn for tax receipts likely to be coming from Switzerland following the Swiss tax deal. The credit is for the whole amount they think they might receive over ensuing months.
Underlying tax revenue is mixed. National Insurance is up 3% and VAT up 2.1% in May, whilst Income Tax and CGT are down 2%.
The longer term perspective can sometimes be useful. Total current public spending was £3.6bn in 1946, £10 bn in 1966, £45 bn in 1976 and £138 bn in 1986. In 1996 it reached £283 bn, and £480 bn by 2006. In 2010 it stood at £605bn, to rise to £631bn in 2012. Over many years there has been endless talk about cuts, yet current spending in cash terms and usually in real terms as well has gone on rising.
As the economy picks up it is likely receipts will rise a bit more, helped by the lower rates where these have been applied. Spending should start to come under better control, as the Coalition’s plans always assumed growth in public spending in cash and real terms for the first two years, to be followed by slower cash growth in the second half of the Parliament. This may start to happen, assuming the big boost to Councils is a timing issue and not an overall increase.
Next week the Chancellor will announce spending totals for 2015-16, with a view to putting more downward pressure on the growth in cash spending by the public sector.