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

Nick Timothy on George Osborne’s latest:

“Evening Standard editorials will soon be shortlisted for the Booker Prize.”

Sponsors

Guidogram: Sign up

Subscribe to the most succinct 7 days a week daily email read by thousands of Westminster insiders.
Hammond Overspending by Just £10 Million an Hour Hammond Overspending by Just £10 Million an Hour
Momentum Soft Smut Snapper Rejected as Labour Candidate Momentum Soft Smut Snapper Rejected as Labour Candidate
All Smiles After Cabinet All Smiles After Cabinet
Who’s The Eye’s Telegraph Mole? Who’s The Eye’s Telegraph Mole?
UK Green Lobby Funded by Anti-Immigrant Multi-Millionaire UK Green Lobby Funded by Anti-Immigrant Multi-Millionaire
Tory Glasto Hosted by Multi-Millionaire Gambling Magnate Tory Glasto Hosted by Multi-Millionaire Gambling Magnate
Hammond and Treasury “On Manoeuvres” Against Brexit Hammond and Treasury “On Manoeuvres” Against Brexit
Osborne Lands Job Number Seven Osborne Lands Job Number Seven
Civil Service ‘Not Really Preparing’ For No Deal Civil Service ‘Not Really Preparing’ For No Deal
Osborne’s Latest Duff Analysis Osborne’s Latest Duff Analysis
Corbynista Journo Banned from Conference Corbynista Journo Banned from Conference
Sheerman’s Shameless Shilling Sheerman’s Shameless Shilling
Carwyn Jones Picks a Winner Carwyn Jones Picks a Winner
Red Robbins: May’s Brexit Supremo is Soviet Sympathiser Red Robbins: May’s Brexit Supremo is Soviet Sympathiser
Owen Goes Full Brent Owen Goes Full Brent
What Caused Rachel Sylvester’s Volte Face? What Caused Rachel Sylvester’s Volte Face?
Labour Moderates Screwed Labour Moderates Screwed
WATCH Boris: “I’m Not Resigning” WATCH Boris: “I’m Not Resigning”
Corbynistas Seek Right to Suspend NEC Elections With “Venezuela Amendment” Corbynistas Seek Right to Suspend NEC Elections With “Venezuela Amendment”
Osborne Repents Osborne Repents