Spending Cuts In Perspective



Much media coverage of Mr Osborne's prudent and necessary programme of fiscal retrenchment continues to stress the "savage" nature of the cuts. Last night's BBC Newsnight was typical, opening with footage of a huge axe poised over a school playground. The message was that abandoning Labour's multi-billion Building Schools for the Future (BSF) programme will seriously undermine frontline services.

In reality of course, the £50bn BSF had already turned into an expensive bureaucratic disaster (see this blog), and it threatened to leave us with yet another socialist legacy of poorly built, difficult to maintain, education factories (see this blog). But the impression left by Newsnight was of a savage blow to the educational prospects of millions of children.

Of course, nobody says that spending restraint will be easy, but the truth is that Osborne's programme will make barely a dent in the massive upward trend of public spending over the recent past.

As we've blogged before, far from cutting spending, his budget actually projects a 9% increase by 2015-16 (Total Managed Expenditure increases from £696.8bn this year to £757.7bn in 2015-15). So if the public sector was able to restrain the price it pays for goods and services, then it needn't necessarily cut the volume of stuff it's able to buy at all.


But even allowing for price increases, the reduction looks pretty small in relation to the reckless rise of spending under Labour.

The above chart shows public spending in real terms (ie 2010-11 prices adjusted using the GDP deflator) all the way back to 1964-65. We have spliced on Osborne's budget projections out to 2015-16.


As we can see, over the next 5 years Osborne intends to squeeze total public spending by 4%, or about £25bn pa. And that will merely take spending back to the level last seen in 2008-09 - hardly a return to Dickensian rags.

And compared to when Labour came to power in 1997, real spending will still be over 50% higher. Most of Labour's huge spending splurge will remain in place.

Yes, we know that some departments will be squeezed more than others. But without yet knowing the outcome of the Spending Review, we'll be amazed if any department ends up with less in real terms than it had when Labour came to power. And as has been pointed out elsewhere, in all key essentials the world seemed to be working perfectly well in 1997.

You might want to keep these figures handy for the next axe horror story you see in the media.

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