Both parties will cut public spending

Allister Heath
ANY future government faces one of three option: either continue racking up a crippling budget deficit; or put taxes up until the pips squeaks and anybody with any sense leaves the country; or cut spending. We simply cannot go on with budget deficits of &pound;100bn-&pound;200bn a year for the next decade, which is what we will get if public spending continues to rise at the rate of the past few years. <br /><br />Although it doesn&rsquo;t dare admit it, the government agrees. Gordon Brown yesterday reiterated that he is planning for total public spending to reach &pound;702bn by 2010-11, &pound;717bn in 2011-12, &pound;738bn by 2012-13 and &pound;758bn in 2013-14. But in typical Brown fashion, these figures were given in nominal terms &ndash; they were not adjusted for inflation. If one were to do that, using Treasury estimates for future price rises, the result would look dramatically different: public spending would drop slightly in real terms from &pound;702bn in 2010-11, to &pound;699bn in 2011-12, &pound;701bn in 2012-13 and &pound;700bn in 2013-14. That paints the Brown forecasts in a totally different light; contrary to his repeated claims, he is actually planning real term cuts in public spending if he is re-elected, albeit by just 0.1 per cent a year.<br /><br />The story gets even worse for Labour&rsquo;s idiotic &ldquo;Tory cuts versus Labour investment&rdquo; narrative. As the Institute for Fiscal Studies has pointed out, if you strip out the growing burden of debt interest, then other spending is going to have to be slashed by much more than that, within the overall spending total. One could also assume that benefits (such as the state pension) will remain untouched; in that case, real spending across other government departments would have to tumble from &pound;391bn in 2010-11 to &pound;364bn in real terms by 2013-14, a 2.3 per cent annual drop which amounts to a cumulative 7 per cent cut. <br /><br />The Tories want to follow Labour&rsquo;s aggregate spending plans and therefore would go along with all of that, with two exceptions: they would continue to grow spending on health and foreign aid. So you would get 3.3 per cent annual real terms cuts in non-NHS and international development expenditure, or roughly 10 per cent over the three year in question. <br /><br />Brown sometimes likes to focus exclusively on what he calls current spending, which doesn&rsquo;t include capital spending such as building new roads, to buttress his claims that &ldquo;front-line&rdquo; expenditure will still be increasing (by 0.7 per cent a year in real terms). But this is only because he will be cutting capital investment from a gross &pound;57bn in 2010-11 to &pound;46bn in 2013-14 (these are nominal values, the real cut is much greater). The only way to keep current spending growing is to push through deep cuts in capital spending. Brown&rsquo;s longstanding trick has been to describe all public spending as &ldquo;investment&rdquo;; the great paradox is that he is planning to cut the only expenditure that truly qualifies as investment. Even more absurdly, he is viciously accusing the Tories of cuts that he too is planning.<br /><br />So both Tories and Labour would cut real spending by the same overall amount, though the Tories would shield the NHS and foreign aid in return for deeper cuts elsewhere. I wish the Tories would contemplate more drastic cuts, but that is not the point. There is currently no clear blue waters between the parties. The debate would be greatly enriched if everybody were to acknowledge this. <br /><br />