The numbers behind Mr Miliband's big speech

December 11, 2014 10:56 AM

Labour leader Ed Miliband will today criticise Coalition plans to reduce spending over the next Parliament.

"The Tory plan is to return spending on public services to a share last seen in the 1930s"

Unfortunately for Ed, three points jump out in response to his statement: first, people actually want more cuts to unnecessary spending. Secondly, unlike in America, living standards in Britain grew impressively during the 1930s, so repeating that success would leave us much better off. Thirdly, the fraction of the economy spent by government might be going back to 1930s levels, but spending itself will only be going back to 2008 levels.

Back to 2008

The economy in 2019-20 will be much, much bigger than it was in the 1930s. Around five times bigger. So comparing the share of the economy spent in the 2010s to the 1930s only tells us so much. Total Managed Expenditure is forecast to rise from £720 billion last year to £780 billion in 2019-20, in cash terms. After adjusting for inflation, that works out to a fall to £704 billion in 2013-14 prices. The last time spending was that low was in 2007-08 when it was £682 billion (again in 2013-14 prices). Interest payments on debt have increased a lot since then, so spending excluding interest will be a bit lower and you'd have to go back a few more years to account for that.

Another way of looking at it is considering that the plans will reduce our government share of spending down to a level closer to those found in Switzerland or Australia.

Living standards

The average real economic growth in the 1930s was 3.3 per cent. If you apply that rate to the forecasts for real GDP growth produced by the OBR in the Autumn Statement, we would end up with an economy 6.5 per cent bigger by 2019-20 than existing forecasts.

To put that into perspective, average earnings in 2013 were £27,102. An extra 6.5 per cent would mean £1,769, raising the average to £28,872. And lower tax rates wouldn't just mean faster growth and higher wages. It would also mean we get to keep more of what we earn instead of having to hand so much over to politicians to spend for us.

Cutting waste is popular

Polling released today shows that voters agree that cutting spending to 1930s levels is 'good' by a margin of 33 to 25 per cent.

Ed Miliband should join us and declare a War on Waste. The Coalition isn't doing nearly enough to cut spending back down to a level we can afford. That's why taxes have to be so high, creating a cost of living crisis. Cutting spending would enable him to cut the burden of tax which would in turn create the conditions for growth, jobs and employment for the people he says he wants to help. And from corporate welfare and middle class benefits to pay and perks for public sector bosses there's no shortage of cuts which by rights he should support. If he doesn't join our War on Waste, he's effectively opposing the jobs and higher wages which would result from the tax cuts he'd be able to deliver.

What's stopping him?

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