In 2009-10 total UK government spending was £669.3bn. The latest forecast of spending for 2015-16 is £744.7bn.
Over a six year period that is a rise of £75.4bn or 12.65% in the amount of cash spent by the state.
Most commentators and many politicians claim that this represents a severe squeeze, a major cut. If challenged about how overall it can be called a cut when there has been such a big rise in cash spent, they resort to claiming it has been a real terms cut. They suggest the cash rise has not been enough to compensate for inflation.
Alternatively, they highlight those budgets and areas within the total that have been cut, to allow faster growth in the government’s priority areas of welfare, pensions, health and education which have gone up.
I have never denied that some budgets have been cut in both cash and real terms. Defence, for example, has clearly been cut. So too has the government overhead, which is a good idea. I just think that we need to start from the overall figures, and recognise these have been rising.
The 12.75% increase in total public spending over the six years is around the same as the inflation rate as measured by the GDP deflator (using official forecasts for the future years). It appears that the first half of the Coalition government period in office saw small real increases in public spending as I highlighted at the time.These are to be followed by small real declines in the second half, perhaps reaching 0.4% real decline per annum. If the government and the Bank do a better job on controlling inflation, then we could experience further small real increases in spending on these numbers. The recent declines in world commodity prices and the relative stability of sterling will help keep inflation down. Past inflation owed a lot to weak sterling and rising commodity prices.
These so called real declines could be offset by proper control of public sector costs. With the cash increases available, it should be possible to increase the total amount of public service. Government priorities for above average increases in some areas will still mean cuts in some others of course.
The use of the language of cuts is a major obstacle to a proper debate on how much we can afford to spend and how much we get for our spending. If the government does more for less, as the private sector regularly does, there are those who would see the lower cost as a “cut”.
However, some elements of public spending are treated differently. If MPs had a cash increase in their pay, this would be seen generally as an increase or rise. If MPs pointed out the increase was less than inflation and was therefore a cut, few would see it like that. They would correctly argue that MPs had had a rise. Before your blood pressure explodes, fear not. You will be relieved to know that MP pay last year after pension deductions was lower in cash terms than in 2009-10.
As most public sector spending is either the pay of public sector staff or the benefit and pension pay of people not in work, is it right to use very different language for describing public spending changes from the commonsense language we use about pay, where a cash increase is a rise? The truth is we are still spending a huge amount on government account. We need the government to do more for less in the priority areas, and to slim the overall size of government.