Listen to Isabel Hardman and James Forsyth discuss the 2013 spending review:
Spending — total cuts moving at a glacial pace. George Osborne said that total state spending will be £745 billon in 2015-16, and figures from the Office for Budget Responsibility suggest this means he will now take eight years to cut total state spending by just 2.6 per cent. Remember this figure next time you hear anyone taking about ‘harsh, deep’ cuts. The only period of recent history we have for comparison is the cuts made under Labour at the behest of the IMF*.
More public sector jobs cuts. The Chancellor will axe a further 144,000 public sector jobs, and he’s right to say that the likely net result will be more jobs. While he is undoubtedly motivated by a desire to remould the electorate (and have less voters whose livelihoods depend on high-spending governments) his overall logic is sound. The government can’t create jobs: best it can do is move jobs, from the private to the public sector. Osborne is moving them back. The below shows how he’s doing so far:-
Ring fencing focuses pain. Osborne’s policy has been to take a highly politicised view to cutting. Politically sensitive areas (health, education, aid) have been protected while police, defence, students etc will get it the worse. Today’s spending review showed this trend will continue for another year. Here’s a list of the winners and losers
Osborne fiddles deficit figure. In his speech he had a boast about the deficit that sounded odd to those who remember the deficit actually rising last year. And yet he had this to say:
‘Instead of the £157 billion the last government was borrowing, this year, we are set to borrow £108 billion pounds. That’s £49 billion less in borrowing. That’s virtually the entire education budget.’
Oh, George. This is a nonsense figure, manufactured by factoring in the Post Office pensions (the government banked the assets of the scheme, but hasn’t accounted for the liabilities). Plus some transfers from QE. When you strip them out, you see that Osborne is midway through a two-year suspension of deficit reduction.
Squeezing the rich: George Osborne correctly said that the richest have never shouldered a greater share of the UK tax burden. This is in spite of his cutting the top rate of income tax from 50p to 45p. Or, as some of us argued at the time, because of his cutting the top rate of income tax from 50p. If he’d cut it to 40p, he’d have even more cash. Here’s the estimates from HMRC
Review of school funding. It’s true that spending per pupil can vary from £5,000 to £10,000 per pupil – and it’s true there is very little rhyme or reason to all this. Osborne had this to say:
School funding across the country is not equally distributed, but distributed on a historical basis with no logical reason. The result is that some schools get much more than others in the same circumstances. It’s unfair and we’re going to put it right. Many MPs from all sides have campaigned for it.
This will be tough – giving from one school means taking away from another. So very, very controversial. But why? Earlier this year, a Deloitte study commissioned by the government demonstrated that there is zero linkage between the money and the attainment. Here’s the graph:
And some other points:
- Pay: 1 per cent cap on public sector pay rises. But the public sector have proven adept at getting around these caps (changing salary bands, etc) and the pay of government employees has risen higher than those in the private sector. Osborne says he wants to end automatic progression in civil service, teaching, the NHS and the police. So will he be rewriting contracts? Unlikely.
- Welfare: There is a new cap from April 2015, a month before the election (ie, this is an election policy). This matters because, until now, the very concept of a welfare cap did not exist in UK government spending (the split between AME, which is debt and welfare, and DEL which is everything else). Pensions are not included (Ed Balls famously suggested that he would include pensions in his cap) but once a cap exists, it can be fitted on to other departments. As Ben Brogan argues, Osborne has won the argument: spending cuts are the new normal.
*And finally, a word in defence of Denis Healey Danny Finkelstein takes issue with the comparison, and says that Healey may have cut by 3.9 per cent in 1976-77 but put spending back straight back up the year later. So Healey cheated, he said, “the job is to keep spending down”. The OBR figures say that Healey did, in fact, keep spending down. Both Healey and Callaghan get a very bad press from Tories, who like to see Thatcher’s election as Year Zero. But Healey did far more fiscal heavy lifting than he has been given credit for. By the time Thatcher was elected, things were going a lot better. Over the five-year parliament under Labour, the ratio of state spending-GDP dropped from 48.7% to 44.6%: a 4.1-point cut. This is bigger than the 3.4-point cut which the OBR expects from Osborne’s five years.
Tories do have a weakness for hyperbole, and sometimes think Osborne is trying to do what no man born of woman has done before. The truth is that there have been plenty of fiscal consolidations in developed economies over the last three or four decades, and Osborne’s doesn’t even make the top 20.