Cuts? What cuts? Isn’t spending going up?

There is a curious paradox on the economic front, which has been mentioned several times in the media (not least by Simon Heffer), but which is, it seems to me, little understood.  We know about the cuts.  Councils are making do on less, jobs are being lost, public sector staffing and wages and pensions are being squeezed, the police in particular have had a very painful deal.  So yes, of course there are cuts  Superficially at least, the protesters on the streets have a point — or at least an issue — though they lack any coherent idea of how their demands might be met.

But on the other hand, if you look at the budget figures, there simply aren’t any cuts.  Government  spending is £694 bn in 2010/11, and rises inexorably year by year until the end of this parliament.  In 2015/16, it’s planned to be £764 bn.  That’s an increase of over 10%.  Not a large increase in historical terms, but an increase.  So where are the cuts?

The problem is that although spending is up, so is debt.  And so is interest.  Over the same period, the total UK government debt increases from £909 bn to £1359 bn — in round terms, a whopping 50%.  As a result, our annual debt interest payments rise from £43 bn to £67 bn.  A big chunk of the planned spending increase will be blown away by interest payments.  So together with the huge cost pressures from an ageing population, the NHS, welfare and other policy areas, it’s little wonder that we find spending cuts within an increasing overall spend.

But, perhaps you’re thinking, isn’t all this pain, all these cuts, designed to eliminate the deficit?  So how come the debt, and the interest, are shooting up?

This brings us to another piece of confusion which I find is widespread (and I apologise to those financial sophisticates out there to whom this is all elementary stuff).  The deficit we talk about so much, and which George Osborne is committed to eliminating over the life of the parliament, is just the annual deficit.  It’s the extra borrowing we take on each year.  It’s not the total national debt, which (if you like) is the cumulative deficit over the years.  So the rate of new borrowing needs to come down, and well done George for his determination to get it to zero by 2015.  But as long as we have an annual deficit at all, the national debt, and the interest payable, keep right on going up.

Public sector debt was £760 bn in 2009/10, and is expected to be £1359 bn by 2015/16 — a huge increase of 78%.  Put another way, debt rises from 53% to 70% of GDP over the period.  And that’s despite the cuts which are causing so much angst.

Gordon Brown took Britain perilously close to a Greek-style debt trap.  George Osborne has the unenviable task of extricating us, and there’s no way to do that without painful austerity measures.  And the bad news — the red light at the end of the tunnel — is that when we get the annual deficit close to zero, we’re still left with a mountain of debt, and massive annual interest payments.  The next task will be to start getting the debt down — but that’s  a task for the next parliament.

copy-of-debt-deficit-and-tme

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4 Responses to Cuts? What cuts? Isn’t spending going up?

  1. Charles Wardrop says:

    Our Coalition are not adequately publicising this vital info: why not?

    Why do important office-holders like Mr Chris Huehne and Mr Andrew Mithchell and the EU and Middle East warmongering get to use up taxpayers’ money for no benefit to us in return ?

    • We should be publicising these facts so that the public can see why the cuts are unavoidable. But I absolutely agree with you that we should cut spending on climate mitigation and foreign aid before we cut spending at home.

  2. John says:

    I accept that our debt is increasing as such we have to have cuts to slow it downn as quick as possible, but the reason the spending is going up is the interest on the debt is going up ,I’ve noticed massive polce cuts, maybe there areas of Policing Like neoghbour wards in middle class areas, but the cuts in officers at the moment is scary

  3. Peter Hulme Cross says:

    Once the Public Spending ‘tap’ has been turned on, as Gordon Brown did when he almost doubled Public Spending in the 1998 Spending Review, it is very hard to turn it off again, as the table above shows. The need to reduce Public Spending is one thing; how it is achieved is quite another.

    For example, my Local Council say their grant from Government has been cut by 30%. So they are closing Libraries and Day Centres, and cutting back on Park Rangers, Envirocrime Officers, Cleansing Monitoring Officers, Community Centre Staff, and PCSOs. They have not cut back on Section Heads, Communications, or Union Facility Time to the same extent. They still have £16.3 million in the budget for new Council Offices and want to build a Car Park for £5.5 million in a part of the Borough which already has a perfectly good one that is hardly ever full.

    Yes, it is a Labour Council which appears to want to pass on the full extent of the cuts to make a political point while safeguarding things which are ‘dear to Labour’s heart’, if I may put it that way. There are lots of other ways to reduce overheads without passing them on to frontline services. But that is what some Public Sector organisations seem to want to do.

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