Sunday 25 September 2011 10:23 pm

The cuts are a convenient lie for the whole political class: City A.M. does the maths

BY THE TIME you finish this article, the UK’s central government will have spent around a million pounds. It is quite possible that it will have spent even more. Sounds incredible, yes? But last month, and every month this year, that is precisely what happened. For each minute that passed in August, the UK’s central government spent over £1m. Total central government current expenditure, to use the technical term, came to £52.1bn in August – up 7.2 per cent from the same time last year. Incredibly, this does not even include local government spending, or public corporation spending, or the “investment” spending that senior members of the government reportedly want to hike even further. So what’s happened to the cuts? Inflation, of course, should be taken into account. The supposedly temporary price hikes that continue to hammer UK residents – especially those on low incomes – also raise the cost of government programmes. The Office for National Statistics’s most recent estimates have the GDP deflator (used to account for inflation on government figures) running at 2.9 per cent annualised. Assuming this is accurate enough to be applied to the whole year so far, central government current spending from April to August was still up 0.84 per cent in real terms compared to the same period in 2010. Not as steep a rise as we saw last month, but still hardly the “savage cuts” that Labour’s shadow chancellor Ed Balls describes. And note this: over the same months in Labour’s final year in power, central government current spending was nearly £24bn less than it was this year. What’s more, in Labour’s penultimate year (2008), spending from April to August was £36.5bn less than that spent under the Conservative-Lib Dem coalition in 2011. Even accounting for inflation with the GDP deflator, central government spending this fiscal year is up more than 4 per cent compared to the same period in Labour’s final year. Where is the too-hard-and-too-fast austerity that Labour claims has hampered the recovery? Could it have been in other areas of state spending – local government, investment, and so on? In the first half of last year, when the coalition came to power, total public sector spending jumped 4.4 per cent (over £13bn) compared to the year before – even allowing for inflation. That includes other areas of expenditure, such as local government spending and state-owned corporations’ spending, not just that of central government. This year, the first six months saw another £7.5bn nominal rise in total public sector spending (which excludes the effects of financial sector interventions). When inflation is taken into account, this does amount to a decline – of 0.43 per cent, compared to 2010. Yes, total public sector spending, even in real terms, was just 0.43 per cent lower than last year – and still 3.9 per cent higher, in real terms, than in Labour’s final full year in power (2009). By the end of the current fiscal year, the government’s officially recognised debt – which does not even include many eye-watering, massive liabilities – will top one trillion pounds. It has already reached the equivalent of 61.4 per cent of British GDP. Little wonder that last month’s level of public sector net borrowing – £15.9bn – was an all-time record high for August, despite the government clawing in £2.24bn more in tax than during the same month last year. Net borrowing has reached £51.5bn in the financial year to date, only slightly down from borrowing of £55.3bn at the same point in last year’s cycle. The billions aren’t going quite as far as they used to, thanks to inflation, but this still looks more like topiary than axe-swinging. The government remains on track to pile more than another £120bn onto the public debt by the end of the year, with some economists doubting if the annual deficit will be cut at all. None of this chimes with the debate that is raging throughout Westminster and most of the media concerning “painful cuts”. Astonishingly, a poll this year revealed that nine out of 10 people have no idea that the government is chucking hundreds of billions of pounds onto the debt pile. They actually think the government is cutting the debt. Perhaps this should not be a surprise at a time when an editorial column in the Guardian newspaper suggested that the government should “pay down its debts more slowly.” If only they were being paid down at all. Most demoralising is that seven out of 10 people believe the government is cutting £350bn from its debt over the course of the parliament – when it is adding even more than this amount. The blame for this deception does not lie solely with Labour, or with the more socialist-leaning or Keynesian sides of the debate. The coalition must take some criticism, too. From day one, and even during the preceding electioneering, both Conservatives and Liberal Democrats have fallen in line with the rhetoric that any reduction in the government’s runaway spending will be painful for everyone in the UK and is inherently a bad thing. The only fight they put up is to say that they were reluctantly forced into this situation. They happily give the impression that real austerity has been in place since David Cameron entered Downing Street on 11 May last year – a convenient lie for the whole state-funded political class. The British state is gigantic, set to spend the equivalent of 50.1 per cent of GDP this year, according to the OECD. It has become larger since the coalition took power, and, as yet, there are few signs of significant cuts to its mass. Julian Harris is senior economics reporter at City A.M.

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