If we take the wider definition of our public borrowings which includes the state owned banks, Network Rail and the rest, it is down just a little since 2010. It currently stands at £2800 billion. (This does not include the future costs of the state pension as we have often discussed before!) It rose rapidly from £743 billion in 2007-8 to £2870 bn in 2009-10, Labour’s last year in office.
Under the Coalition the level of state bank indebtedness has been curbed substantially. This has been almost entirely offset by continuing increases in state borrowings to pay for public spending. On the narrower definition of state borrowing excluding banks the total has risen from £956bn in March 2010 to £1432 bn in August 2014, an increase of £476 bn. This puts the idea of public sector austerity into perspective. The Coalition has continued borrowing at a similar rate to Labour’s increases, though the Coalition is gradually bringing down the rate of increase in the borrowing.
This August spending is up by 3.3% on the previous year. Current spending is up by a little over 1%, and capital spending is up by more than fifth. Revenues are up by 3.2%, thanks to a strong performance from VAT, Stamp duties and Corporation tax. Income tax is not very buoyant owing to the substantial increase in Income Tax thresholds. Austerity originally designed for the public sector has become a term to describe the squeeze on living standards which started with a large fall towards the end of Labour’s period in office and has continued at a slower pace since 2010. The original plan to eliminate the deficit this Parliament has been delayed by less progress in increasing tax receipts than planned. The spending reductions were always going to be more towards the end of the adjustment process, and many of these have now been delayed until the next Parliament.
The Chancellor is seeking £25 bn of additional spending reductions compared to current plans for the next Parliament. He has stated that “12bn will come from welfare changes, and £13 bn from general departmental spending including overhead costs. The Shadow Chancellor has said he merely wants to eliminate the current deficit, but would carry on borrowing for all capital spending, which means he needs fewer cuts to present plans. Total borrowing in the next Parliament could be reduced substantially by selling all the remaining shares in banks. This would be a good idea for a variety of reasons and would be the single biggest way of reducing the loan mountain. I invite your thoughts on the pace of deficit reduction and the desirability or other wise of spending cuts.