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.




Tip offs: 0709 284 0531
team@Order-order.com

Quote of the Day

Jeremy Corbyn at his leadership launch:

“Labour is stronger.”

Guidogram: Sign up

Subscribe to the most succinct 7 days a week daily email read by thousands of Westminster insiders.

Facebook

MCGINN WHIPPED LABOUR MPS TO “KEEP UP THE PRESSURE ON JC” MCGINN WHIPPED LABOUR MPS TO “KEEP UP THE PRESSURE ON JC”
VICTORIA’S SECRET LINGERIE AND 5 STAR HOTELS: WELSH GOVT’S £7.5 MILLION CREDIT CARD SPEND VICTORIA’S SECRET LINGERIE AND 5 STAR HOTELS: WELSH GOVT’S £7.5 MILLION CREDIT CARD SPEND
OWEN SMITH HIRES TOP PFIZER LOBBYIST TO RUN CAMPAIGN OWEN SMITH HIRES TOP PFIZER LOBBYIST TO RUN CAMPAIGN
HAMMOND FIBS AND SAUDI SLAVERY SLIPPED OUT ON DUMPING DAY HAMMOND FIBS AND SAUDI SLAVERY SLIPPED OUT ON DUMPING DAY
MATTHEW ELLIOTT ON WHY LEAVE WON MATTHEW ELLIOTT ON WHY LEAVE WON
OSBORNE GIVEN “SH*T” ROOM WITH NO VIEW OSBORNE GIVEN “SH*T” ROOM WITH NO VIEW
5,000,000 SIGNATURES: FEW POLICY CHANGES 5,000,000 SIGNATURES: FEW POLICY CHANGES
CORBYNISTAS USED CODE TO HIDE CASH-FOR-VOTES PLOT CORBYNISTAS USED CODE TO HIDE CASH-FOR-VOTES PLOT
First Lady Michelle Obama Carpool Karaoke First Lady Michelle Obama Carpool Karaoke
PMQ’s Sketch PMQ’s Sketch
How to Reach Westminster Politicians How to Reach Westminster Politicians
OWEN SMITH’S 999 EMERGENCY OWEN SMITH’S 999 EMERGENCY
MELANIA BORROWS FROM MICHELLE MELANIA BORROWS FROM MICHELLE
MAY: I WOULD PRESS NUCLEAR BUTTON MAY: I WOULD PRESS NUCLEAR BUTTON
New Uber Rival Tries to Get Unions Onside New Uber Rival Tries to Get Unions Onside
SMITH’S £200 BILION “NEW DEAL” PLEDGE BUSTED BY MCDONNELL SMITH’S £200 BILION “NEW DEAL” PLEDGE BUSTED BY MCDONNELL
CONGRATULATIONS MR AND MRS UMUNNA CONGRATULATIONS MR AND MRS UMUNNA
UKIP SEEKING TO TAKE ADVANTAGE OF “OILY” SMITH UKIP SEEKING TO TAKE ADVANTAGE OF “OILY” SMITH
FALLON WELCHES ON £1,000 PIERS MORGAN BET FALLON WELCHES ON £1,000 PIERS MORGAN BET
OWEN SMITH: IT WOULD BE “TEMPTING” TO BLOCK BREXIT OWEN SMITH: IT WOULD BE “TEMPTING” TO BLOCK BREXIT