Dec 2009 09

Fantasy Spending11

The most concerning aspect of the PBR is its failure to address our excessive public spending.

Because the key reason for our fiscal mess is that over the last decade public spending has been increased way beyond the capacity of our economy to support. According to the OECD, next year it will exceed 50% of our GDP, and it must be cut substantially.

The OECD also says that in both 2010 and 2011, the UK will have the highest government borrowing of any developed economy. And that includes supposed fiscal basket cases like Ireland, Iceland, and Greece. We are living on the edge, abd sooner or later the financial markets will take fright.

Against that worrisome background, the PBR's main spending decison was to increase it. Yes, that's right – public spending both this year and next is now set to be £5bn pa higher than forecast in the Budget.

And the longer term looks no better. Despite some broadbrush promisess of caps on public sector pay and pensions, there is no comprehensive spending plan. And very little detail on specific cuts, such as those proposed in the TPA/IOD cuts paper. Instead there is a great deal of wishful thinking.

For example, the NHS has been targeted for £15-20bn of those notorious "efficiency savings", but there is no detail on how they will be achieved – other than a statement that details will follow in the next budget. In other words, the whole thorny issue has been deferred.

Now, as long as we can continue to borrow a rock bottom rates we can continue with the fantasy of high spending. But history tells us fantasies like this never have a happy ending – as the markets will doubtless remind us some time in the next 12 months or so.

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Mike Denham is a former Treasury economist who worked extensively on public spending and fiscal analysis during the 1970s and early 1980s. His work included cost benefit appraisal of public projects, analysis of public sector cost inflation and value for money studies.

For the next 20 years he worked in the City as an investment manager, closely following fiscal and monetary policy developments. Now semi-retired, he scrutinises public spending on the TaxPayers' Alliance Burning Our Money blog.

Mike studied PPE at Oxford University, and has a Masters in Economics from the LSE. He lives in Surrey with his wife, and has two sons.



  • Steve Robson

    I need to read the PBR yet, but it must be truly miraculous if its even less specific than the rubbish and vague proposals you come up with. You either give big numbers with no backing or miniscule cuts like senior pay and refreshments, which will do nothing to cut the deficit. pots and kettles come to mind.

  • Hardeep Singh

    To the contrary I think that the TPA are actually asking for bigger chunks of ‘fat’ to be cut and not the refreshments budget of the local quango. Come on Steve old chum surely you must have realised that over the months?

  • Phil

    I tend to wonder if the Labour communists are deliberately destroying our country so as to subjugate us to the EU dictatorship?
    i.e. once Sterling collapses, we should surely join the Euro etc

  • Hardeep Singh

    Good point Phil but the Euro is looking quite shaky itself what with Greece’s current problems. Compounded to that the steadily growing line of Eastern Europe countries looking a touch off colour too. Looks like it’s shaping up to be out of the pan and into the fire.

  • Daran

    Oh Steve, please give it up while you are behind.
    You must be one of the very few people still clinging on to the wreckage wrought by your beloved Labour socialists on this once great nation.
    Most Labourites I know have either scurried away to a hole to hide away for a few years or are so meek with humiliation their heads are permanently lowered in shame.
    Can you not join them to save us from your bullish ‘everything is ok boys’ stance, despite the unequivocal/undisputed independent evidence to the contrary?
    Still, ’tis the season of goodwill to all men. So despite your tarnished ideology I will still raise a glass to you and yours.
    So, here’s to 2010 and the £1.5 Trillion pound Labour policy induced national debt we are all going to have to start paying back.
    Cheers!

  • Adam Wissen

    Only fantacists like the TPA and their rabid right supporters still equate The Labour Party and the European Union with socialism/communism.
    This is a crisis of CAPITALISM. The whole globalised caboodle. Is it a coincidence that economies that relied on the property boom and city money go rounds are suffering the most; Britain, Eire, Iceland.
    ‘That Tony Blair is no socialist.’
    ‘My biggest achievement? New Labour, we got our opponents to change their minds.’
    Need I go on?

  • Daran

    Yes Adam, please do go on. Please tell us all how New Labour’s public spending has been done with anything other than a socialist slant? It is classic socialism. Spend and spend and spend …. Not worrying about how you are going to pay for it all.
    The times were good, they lost there fiscal discipline and Gordon’s war chest was emptied in a spending spree that has seen public spending increase by several hundred billion a year.
    Then when times turned very bad we are now well and truly stuffed. If it wasn’t for the socialist public spending agenda which has created an infrastructure of MASSIVE local and national government and public services then we would be well placed to recover from the recession.
    As it is we are in one of the worst predicaments of ANY country in the world.
    End of story.

  • Adam Wissen

    Spend, spend, spend Daran.
    On what?
    Morally dubious wars, private sector consultants, creating ludicrous public service ‘markets’, bailing out (but not actually nationalising) the banks that had run amok.
    Those Commie/Marxist b*****ds!

  • Daran

    I could be here all night Adam. Quango’s, tier after tier of middle management, expanding the social security budget to be greater than PAYE income etc etc.
    But I’ll pick just one to sum up the carelessness in public spending…..
    How about 3150 chairs for the MOD’s head office @ £1000 each whilst our lads die in Afganistan for lack of equipment?
    A true bargain if ever I saw one ;) Thank god the government have a grip on the purse strings, and the public sector haven’t been p*ssing our money away. Otherwise I could get quite annoyed :)
    On a point of order it matters not a jot where public money is spent, even if it’s on private sector resources. The only thing that matters is that it IS spent. Because regardless of where it is spent it only ever comes from one place – ultimately us, our taxes. The raising and spending of which has been out of control for far too long under Labour.
    And what have we got for this at the end of it all? This:
    £1,500,000,000,000 – it’s our forthcoming national debt.

  • Adam Wissen

    Here’s a good one Daz.
    What have a bunch of crusties in a squat in Bethnal Green and the TPA and their supporters got in common?
    They both want to smash the state.
    Happy New Year!

  • john nagar

    Labour has destroyed Britain by wasting Tax Payers money as a solution(panacea) for any problem that arises. Just throw public money and forget it.If the problem becomes a political hot-potato, they take the easy cop-out by saying “well we gave the funds to solve the problem”. They have squandered the bonanza of North-sea oil money and now the nation is broke.