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The “Government Cuts” phoney war

August 9th, 2011 Posted in Uncategorized by

The government’s “Cuts” agenda is expected to dominate politics over the next three and a half years and during the next election. I expect that we will hear the word “cuts” eminating from the lips of Labour politicians more times during this parliament than we heard Gordon Brown boast that he’d abolished Boom and Bust during the previous three.

Yet the Conservatives and the Liberal Democrats will also freely talk of the cuts they are making, while challenging Labour’s narrative that this is all a heartless exercise motivated purely by ideology. They will point out that Labour left them with an unsustainable deficit, the largest (at 7.2% of GDP)of any country in the OECD bar the United States of America (excluding that of Ireland, which was artificially inflated in 2010 by the one-off costs of its bank bailout) and far larger than that of Greece (5.4%) or Portugal (6.1%). They will accuse Labour of also planning swinging cuts.

So riddle me this: if the Coalition are planning big cuts to government spending, how come the March 2011 Budget revealed that UK government expenditure is planned to increase over the next four years from £685 billion in 2010/11 to £763 billion in 2015/16?

Inflation is only part of the answer. If it continues to run at 4.2%, there will be real term cuts even if there is a nominal increase of £78 billion. But if the government achieves its inflation target of 2% then the level of spending in 2015/16 will actually be just above current levels in real terms.

One has to assume that the government accepts its own inflation target – at least publically. As such, they should acknowledge that their official figures show that overall government spending will be at least as large as, and perhaps slightly larger than, the level of spending they inherited.

So what’s all this talk of cuts? Somehow, it feels a bit like a phoney war. Both camps believe that they can gain by exaggerated what is going on: Labour by suggesting that their political opponents are going after vital services with a scythe; the coaltion partners by pretending to be taking tough action in the face of a foul Labour inheritance. The truth, as the numbers demonstrate, is rather less impressive.

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