An Alice in Wonderland austerity

An Alice in Wonderland austerity

by Bill Jamieson
article from Wednesday 22, July, 2015

MORE CUTS, more savings, more cheeseparing: chancellor George Osborne has launched his spending review this week with a call for £20 billion cuts to Whitehall budgets. Who could doubt the agony of the long rake of austerity tearing yet again down the spine of our national life?

Each unprotected department, we learn, has been asked to come up with savings plans of both twenty-five and forty per cent of their budgets. The proposals, says the BBC’s economics guru Robert Peston, will “require a reinvention of some services taken for granted by the public”. Together with £12 billion of welfare cuts, all this fuels Labour and SNP accusations of unending austerity inflicted by a callous Tory administration.

The impression left is that the entire engine of government has been thrust into reverse. Public services to which we have grown accustomed will be drastically curtailed or cut altogether: an attack on the very core of public life. 

Let’s be in no doubt that the welfare caps are going to bite. And non-protected government departments will indeed “require a reinvention” – a result that many will welcome and which is long overdue.

But a closer look at the figures in the Summer Budget Red Book reveals a rather different picture than the one suggested by “endless austerity”.

The government spending machine has not been thrown into reverse. Quite the opposite: Table C5 towards the end of the book sets out a detailed summary of current government spending together with projections by the Office for Budget Responsibility out to 2019-20. 

This shows Total Managed Expenditure continuing to rise, from £737 billion in 2014-15 to £742.6 billion this year and continuing to climb every year to 2019-20 when it hits £797.3 billion. 

When we look at welfare spending, the figures continue to climb each year: from £214.5 in 2014-15 to £235.1 billion in 2019-20. Even inside the welfare ‘cap’, spending is set to rise from £110.4 billion to £126.5 billion. 

‘Draconian’ cuts?  When we look at current departmental spending within the AME total, we find the figure rising from £358 billion in the current financial year to £412 billion in 2019-20. Therefore, out of a total spend of £1,139 billion over these three years, government departments are being asked to cut £20 billion, a reduction of less than two per cent.

This figure of course is far lower than the mooted reductions of between 20 per cent and 40 per cent in non-protected departments – that is, outside the areas of defence, health and education which account for a huge proportion of public spending and which are spared cuts because they are regarded as priorities. And setting priorities is the central function of government, whether Left or Right. 

This week Stewart Hosie (pictured), the SNP finance spokesman at Westminster, made much of proposed cuts to government capital spending (roads, rail and the broad category frequently described as “investment” which in reality is revenue spending disguised).

But when we see the figures in the Budget Red Book, Public Sector Net Investment rises from £29.5 billion this financial year to £31.8 billion in 2019-20 – lower than in previous projections but still on an upward trajectory. 

Scottish capital spending is hardly plunging. A striking feature of the latest quarterly figures on the Scottish economy has been the astonishing performance of construction. On a year-on-year comparison the Scottish government’s figures show it to have been a stand-out performer with growth of 21.1 per cent – notably stronger than the UK as a whole.

Why should construction have done so well? This may be due to some big projects currently under way, many of them overseen by the SNP administration: the Border railway, the Forth Replacement Crossing, the M8 upgrade in Lanarkshire. 

Indeed the Scottish government budget for capital spending is not as constrained as Mr Hosie makes out. It is set to hit  £3.4 billion this year, a real terms increase of 12.8 per cent, helped by carry-over of monies from 2014-15  And after adding in capital receipts from the sale of assets and NPD spending, planned spending on infrastructure overall this year is set to hit £4.5 billion.

This week brought news of further progress in bringing down the budget deficit, with figures for June seeing revenues up by 4.4 per cent compared with a year ago. But UK public sector debt has continued to rise and now stands at 81.5 per cent of GDP, north of £1.5 trillion. 

How ironic there should be a great hullabaloo over mooted spending cuts while annual debt interest is set to rise from £46 billion in 2014-15 to £57.4 billion in 2019-20. In the Alice in Wonderland looking glass of austerity outrage, this £11.4 billion loss to government departments barely figures: a strange but telling admission.   



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