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20 October 2010

For the right, the cuts aren’t big enough

Right-wingers complain that spending will continue to rise, but they are disguising the true picture

By George Eaton

The £83bn cuts announced today will be the largest since David Lloyd George’s government wielded the Geddes Axe in the 1920s. But for many on the right, that’s nowhere near enough.

In today’s Daily Telegraph, Simon Heffer writes:

The reduction of £83 billion sounds like a lot of money, but it still represents a £92 billion increase in public spending by 2014-15. It will leave a state that is still too large, that is too much of a drain on the productive areas of the economy, and that is undertaking functions that could be done more efficiently and cheaply if transferred to the private sector.

He joins a club accurately described by Tim Montgomerie as “pain deniers”. On Monday in the Times (£), John Redwood, like Heffer, pointed out that “total current public spending will rise every year for the next five years in cash terms”. Why all the talk of “cuts”? Similarly, the City AM editor, Allister Heath, mocked the “squeals of pain” provoked by the coalition’s “comparatively modest cuts”. For the economic right, the long battle against Leviathan has barely begun.

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The pain deniers haven’t got their sums wrong. Public spending will rise from £637.3bn in 2010/11 to £711.4bn in 2014/15. But the claim that the cuts are mythical is only achieved by the old trick of measuring public spending in cash terms, rather than as a percentage of GDP.

As Will Straw has argued, the latter is by far the more sensible measure. At times of economic expansion, it is only reasonable to assume that some of the proceeds of growth will go towards improving public services. In addition, public-sector inflation is usually higher than the average growth in prices.

If we look at public spending as a proportion of GDP, the true picture emerges. The cuts will reduce public spending from 47.3 per cent of GDP in 2010/11 to 39.8 per cent in 2015/16 (see figures below). For many on the right, this is still an unacceptably high level of expenditure. But one can hardly deny that it represents a substantial reduction in the scope and size of the state’s activities.

David Cameron hasn’t suggested that the cuts are too small. But he has warned that they will be permanent. When asked by a Fire Brigade worker in the summer if funding would be restored once the deficit has been addressed, he replied:

[T]he direct answer to your question, should we cut things now and go back later and try and restore them later, [is] I think we should be trying to avoid that approach.

We face the prospect of permanently shrunken public services.

Cameron and George Osborne genuinely believe that you can do “more with less”. We’ll soon find out if they’re right.

Public spending: 2010-16

2010-11 £637.3bn (47.3% GDP)

2011-12 £651.1bn (45.5% GDP)

2012-13 £664.5bn (43.9% GDP)

2013-14 £678.6bn (42.2% GDP)

2014-15 £692.7bn (40.9% GDP)

2015-16 £711.4bn (39.8% GDP)

Source: Public Sector Finances Databank