Spending Cuts: Real or Unreal?

Last week John Redwood advanced the argument that we will not see any overall cut in government spending during this parliament, Guido would add that the government isn’t planning on paying down a single penny of the national debt by 2015 either. Nobody challenged the Redwood-Guido contention that in cash terms there is no overall spending cut – the fact is the coalition budgets over the next 5 years to raise expenditure 15% – from some £600 billion to nearly £700 billion.  Some counter that specific expenditure programmes are already being cut because in real-terms, inflation adjusted, there will be an overall cut in government expenditure.

Last week Peter Hoskin on the Speccie’s CoffeeHouse blog produced a chart* showing an inflation adjusted real-terms spending cut of 2.7% after 5 years. Even this thinnest of salami slices doesn’t ring true, Guido is under the impression that the Treasury aims to keep spending flat in real terms. Peter was kind enough to supply the spreadsheet showing his workings.

Peter used a combination of HM Treasury sources to calculate his deflator (red). If however we plug in the Bank of England’s inflation target of 2% things come out different (orange). Mervyn King was warning us only last year, when he was making the case for printing money (QE), that it was deflation that was the coming threat. Nevertheless if we ignore his previous scaremongering and accept that he will meet the Bank of England’s 2% average inflation target over the term of the parliament, the result is a real terms cut of 0.2%. That is a rounding error, not a significant real terms cut in government expenditure. Based on the Bank of England’s inflation target, government spending by 2015 compared to 2010 will be flat in real terms.

Contrary to the BBC-Guardian cuts narrative, the reality is that there is going to be a real terms spending freeze, the coalition is planning a spending hike of 15% in cash terms, it isn’t planning real terms cuts and it isn’t planning to pay down a penny of the national debt. The deficit unfortunately will still be with us come the next general election…

*Fraser Nelson has other 21st century modernisation plans besides charts for the Speccie under his kilt. Expect to see changes to the magazine’s cover, look and feel.

Death by Spin

Eric Pickles is busy explaining the practical business reasons why the Audit Commission is being killed off. Undoubtedly the organisation had, under New Labour, long ago moved on from being austere bean counters to doing politicallycorrect box ticking exercises, costing unnecessary millions. That is when they weren’t treating themselves to massages or a day at the races at our expense…

Guido suspects that the decisive moment when the fate of the Audit Commission was sealed was before the election when it became public that £56,000 had been paid to spin-merchants Connect Public Affairs to advise them on how to save their overpaid jobs. Connect recommended an expensive

“strong local lobbying response in order to mitigate and combat the activities of Eric Pickles”

Suicide by spin…

Looking down Connect’s list of mainly public sector and trade union clients it provides a handy guide to organisations that are clearly finding it difficult to justify themselves on their own merits, so instead they throw thousands of pounds of taxpayers’ money at spin merchants to do it for them. Quite a few more targets on that list merit defunding by the taxpayer…

Saturday Seven Up

7upGuido will admit that the top stories of this week lack a certain hard news cutting edge. Charlie Kennedy’s drink problems, a hackette’s boobs and the waistline gains of Cameron and Clegg were the heavyweight stories on the blog this week. Pulitzer prize winning stuff. Still managed to amuse 55,538 readers who viewed 261,121 pages over the last seven days. Here are those seven most popular stories (in order of popularity) that you might have missed:

You’re either in front of Guido, or you are behind…

Quote of the Day

Hugo Rifkind writes on the Labour Leadership contest…

“They’re having the leadership contest that none of them had the guts to have two years ago; promising to do all the things they didn’t do when they could have actually done them.”



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Quote of the Day

Chuka has been trying to spin the Siemens row:

Chuka Umunna: It’s no different from Sky News quoting a business leader.

Adam Boulton: Except yours says ‘VOTE LABOUR’ at the bottom.

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