The government’s proposed spending cuts are hugely ambitious – yet since taking power, spending has continued to rise. What’s going on? Simon Wilson reports.
How much is the government meant to be cutting?
About 12.7% of current spending in real terms over four years. That will be tough. Since 1948 there is only one example of a British government cutting public spending in real terms (ie, after inflation) two years in a row. George Osborne’s plan is for spending to fall in real terms in each of the next four years. So even though spending in nominal (cash) terms is scheduled to grow from £600bn last year to £692bn by 2014/2015, the proposed real cuts are hugely ambitious. Overall, the coalition has announced £81bn of cuts, with the aim of bringing borrowing down from £149bn in 2010/2011 to £37bn in 2014/2015. By then Osborne expects to have eliminated the UK’s ‘structural’ deficit (that part of the deficit that won’t be closed up by cyclical growth).
Have they made a good start?
On the face of it, no. Even on the Treasury’s own figures (reproduced this week by deficit über-hawk John Redwood on his blog), the Tory-led coalition is spending far more than Labour was a year ago. In November, the government spent a total of £53.9bn, up 10.9% year-on-year. From May to November, it spent £351.7bn, a 7% rise year-on-year in cash terms. In other words, that still leaves a real-terms spending increase so far of 3% to 4% (depending on which inflation figure you use).
So what’s going on?
Clues can be found in the detailed spending figures published by the Treasury in November (part of the coalition’s pledge to be more transparent on spending). This describes 194,000 payments made by every government department between May and September. Spending included such items as giving £40,000 of taxpayers’ money to Eton College to work with state schools, £1.17m on in-cell TV for prisoners, and £6.6m on free coal for ex-coalminers. HMRC ran up a £170,000 bill on bottled water, and the Ministry of Defence spent £820,000 on hotels in Kenyan game parks. Whitehall paid £271m to one firm, Aspire, which runs IT for Revenue & Customs. It paid £3.3bn to Capita for a range of outsourced contracts – more than several government departments get in a year. Some £1.43bn was spent on school-related Private Finance Initiative (PFI) projects and a further £1.25bn on other PFI contracts. Oh, and £55,000 was spent on decorating 10 Downing Street.
What does all this tell us?
That much government spending appears to remain a bewildering combination of hard-to-control, poorly negotiated commitments that will take years to unwind and ill-considered largesse that the state can’t afford. For an example of why state spending is like a supertanker – large, unwieldy, takes an age to turn round – consider the recruitment freeze in Whitehall. Designed to save money, it’s led to a 65% rise in the bill for agency staff as departments struggle to cope.
The Cabinet Office itself, charged with leading the efficiency drive, saw its advertising and consultancy costs almost quadruple (to £3.4m) in the first three months of the government. That’s before you get to the kind of Department for International Development spending that has grabbed headlines this week.
What’s that?
The Daily Telegraph this week reported that under a scheme called Global Community Links, DfID (a department whose purpose to help the world’s poorest countries) is spending £3m over the next three years on grants to charities and community groups in Britain. The grants of up to £10,000 a time are for funding such events as an “Afro-Cuban dance gala” in Cambridge and a Fairtrade coffee morning in Huddersfield. This kind of spending may have the aim of educating Britons about foreign countries, but when other departments (excluding Health) face 19% real-terms cuts on average, it gives ammunition to critics who argue that DfID’s budget should be slashed.
So John Redwood is right?
He is certainly right to complain that tax rises (VAT, national insurance) are currently making up a proportionately higher part of the deficit reduction than many realise, and more than they will in the later years of the fiscal consolidation. On the Treasury figures, the proportions are 43% in 2011/2012 and 36% in 2012/2013; but by 2015/2016, only 23% of the reduction comes from tax and 77% from spending cuts. But to be fair to the government, they have never pretended otherwise: tax rises can bring in revenue quickly, whereas spending cuts take time to implement. That’s why Osborne projected a fiscal tightening equivalent to just 0.4% of GDP in 2010, whereas an average of 1.4% is projected for the following four years. The deficit hawks might be circling now, but the real cuts are still to come.
‘Bonfire of the quangos’ fails to take
The Tories promised a “bonfire of the quangos” – scrapping 192 government agencies, merging 118 more and substantially reforming a further 171. But they have “botched” it, according to a scathing report by the Commons Public Administration Committee published earlier this month. The report calls the coalition’s ambitions naive, and says the new government faced difficulties in “translating ambitious pre-election rhetoric into deliverable policy”. “The whole process was rushed and poorly handled,” says the committee’s Conservative chairman Bernard Jenkin. “This was a fantastic opportunity to help build the big society and save money at the same time… but I suspect that in the short term the reorganisation will now cost more than it will save.”