In 2013-14 the government plans to increase UK total public spending by 7% or £47bn. (Red Book 2013 Total Managed Expenditure). If you adjust for changes to the Post office Pension fund, the increase is still £19bn. Both current and capital spending is now rising, after the Labour cuts to capital spending earlier this decade which the Coalition largely implemented. Current spending has been rising in real terms under the current government, though at a slower pace than in the previous decade.
The continued buoyancy of public spending explains why the deficit remains persistently high, with planmned extra borrowing this year at £10 bn a month. The news that the economy is now growing faster than forecast means there should be welcome news of lower borrowing this year as tax receipts increase.
The UK in 2007 before the crash was already a high borrowing country. The cyclically adjusted deficit was 5% that year, compared to the US at 3%, Germany at 1% and Canada making debt repayments. The great recession of 2008-9 made the financial position much worse. The present government now expects it to take until near the end of the next Parliament to stop the additional borrowing.
As the last Red Book showed, the UK economy has been one of the better performers since the crash, with gross value added recovering faster than Euroland and considerably faster than countries like Italy and Spain. The USA has performed better, thanks to cheaper energy, faster deficit reduction through spending cuts and a stronger banking system to finance a private sector led recovery.The UK’s figures will look better still in the next statement, given the srong upturn in growth.
Tomorrow I will look at the action I would like to see to curb spending and cut taxes.