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20 October 2011

Osborne’s year of failure

How the Spending Review has left Britain a poorer country in almost ever way.

By George Eaton

As I noted in my blog on Vince Cable earlier, it’s now exactly a year since the Spending Review. At the time, George Osborne boldly declared: “Today’s the day when Britain steps back from the brink.” But, as regular readers will know, it hasn’t quite worked out as planned.

Lower growth

A

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Rather than stimulating growth, Osborne’s policies have strangled it. Growth of just 0.1 per cent in the second quarter of this year, following growth of 0.4 per cent in the first quarter and a contraction of 0.5 per cent in the fourth quarter (see graph), means that, in cumulative terms, the economy has not grown for nine months. The government’s decision to embark on the most dramatic austerity programme of any major economy has left Britain with lower growth than every G7 country except disaster-hit Japan. Since January, when the government’s VAT rise took effect (knocking an estimated 0.3 per cent off annual growth), the average forecast for 2011 growth has been cut from 2 per cent to just 1 per cent.

As a result of lower growth, Osborne has already been forced to announce an extra £44.4bn of borrowing, with more certain to follow when he delivers his autumn statement on 29 November.

Higher unemployment

A

Things aren’t much better on the employment front. Osborne has long claimed that private-sector job creation will “far outweigh” the job losses in the public sector. “We feel responsible for every individual who works for the government, and we will always do everything we can to help them find alternative work,” he said in his Spending Review statement. But over the last year, 264,000 private sector jobs have been created, while 240,000 public sector jobs have been lost (see graph), three times as many as the Office for Budget Responsibility expected. In the last quarter, 111,000 public sector were lost but just 41,000 were created elsewhere. The private sector isn’t picking up the slack. As a result, unemployment has risen to 2.57m, the highest level since 1994, and youth unemployment has risen to 991,000 (see graph), the highest level since comparable records began in 1992.

A

And the situation is only likely to get worse. The Chartered Institute of Personnel and Development [CIPD] has predicted that 610,000 public-sector jobs will be lost by 2016, 210,000 more than forecast by the Office for Budget Responsibility [see Box 3.6 on p. 73 of the OBR’s Economic and Fiscal Outlook].The CIPD, hardly a hotbed of radicalism, has called for the government to halt its public sector job cuts until the private sector has recovered.

Then there are Osborne’s broken promises on public services. Here are two particularly egregious examples that jumped out at me.

We’ll cut the NHS, not the deficit

Repating the Tories’ flagship pledge to protect NHS spending, Osborne said:

The NHS is an intrinsic part of the fabric of our country.

It is the embodiment of a fair society.

This Coalition Government made a commitment to protect the NHS, and increase health spending every year.

Today we honour that commitment in full.

Total health spending will rise each year over and above inflation.

But the data tells a different story. Figures from the Treasury (see Table 1.9) show that the NHS spent £101,985m from April 2010 to April 2011, down from £102,751m the previous year, and a real-terms cut of £766m.

David Cameron is fond of boasting that the NHS budget will rise in cash terms by £12.5bn but what he forgets is that much of this increase will be swallowed up by rampant inflation. Based on the latest GDP deflators (the measure used to determine whether spending is rising in “real-terms”), health spending will fall by nearly 1 per cent in real-terms.

Sure Start: not protected after all

Osborne couldn’t have been clearer in his commitment to Sure Start, the network of childrens’ centres set up by the Blair government.

Sure Start services will be protected in cash terms, and the programme will be refocused on its original purpose.

But the pledge was not met. Rather than ring-fencing the Sure Start budget (as Osborne’s words implied), the coalition decided to amalgamate it into a new “early intervention grant”, which also includes funding for programmes related to teenage pregnancy, mental health and youth crime. These programmes received nearly £2.8bn in 2010-2011 but, this year, they will receive £2.2bn – a real-terms cut of 22.4 per cent.

As a result, as my freedom of information request revealed earlier this year, Sure Start centres have already begun to close across the country. The latest figures suggest that at least 47 have been closed or will be closed in the near future. For this reason, Britain is not only becoming a poorer country but a more unequal one too.

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  1. Business
  2. Economics
20 October 2011updated 22 Oct 2020 3:55pm

Osborne’s year of failure

How the Spending Review has left Britain a poorer country in almost ever way.

By George Eaton

As I noted in my blog on Vince Cable earlier, it’s now exactly a year since the Spending Review. At the time, George Osborne boldly declared: “Today’s the day when Britain steps back from the brink.” But, as regular readers will know, it hasn’t quite worked out as planned.

Lower growth

A

Rather than stimulating growth, Osborne’s policies have strangled it. Growth of just 0.1 per cent in the second quarter of this year, following growth of 0.4 per cent in the first quarter and a contraction of 0.5 per cent in the fourth quarter (see graph), means that, in cumulative terms, the economy has not grown for nine months. The government’s decision to embark on the most dramatic austerity programme of any major economy has left Britain with lower growth than every G7 country except disaster-hit Japan. Since January, when the government’s VAT rise took effect (knocking an estimated 0.3 per cent off annual growth), the average forecast for 2011 growth has been cut from 2 per cent to just 1 per cent.

As a result of lower growth, Osborne has already been forced to announce an extra £44.4bn of borrowing, with more certain to follow when he delivers his autumn statement on 29 November.

Higher unemployment

A

Things aren’t much better on the employment front. Osborne has long claimed that private-sector job creation will “far outweigh” the job losses in the public sector. “We feel responsible for every individual who works for the government, and we will always do everything we can to help them find alternative work,” he said in his Spending Review statement. But over the last year, 264,000 private sector jobs have been created, while 240,000 public sector jobs have been lost (see graph), three times as many as the Office for Budget Responsibility expected. In the last quarter, 111,000 public sector were lost but just 41,000 were created elsewhere. The private sector isn’t picking up the slack. As a result, unemployment has risen to 2.57m, the highest level since 1994, and youth unemployment has risen to 991,000 (see graph), the highest level since comparable records began in 1992.

A

And the situation is only likely to get worse. The Chartered Institute of Personnel and Development [CIPD] has predicted that 610,000 public-sector jobs will be lost by 2016, 210,000 more than forecast by the Office for Budget Responsibility [see Box 3.6 on p. 73 of the OBR’s Economic and Fiscal Outlook].The CIPD, hardly a hotbed of radicalism, has called for the government to halt its public sector job cuts until the private sector has recovered.

Then there are Osborne’s broken promises on public services. Here are two particularly egregious examples that jumped out at me.

We’ll cut the NHS, not the deficit

Repating the Tories’ flagship pledge to protect NHS spending, Osborne said:

The NHS is an intrinsic part of the fabric of our country.

It is the embodiment of a fair society.

This Coalition Government made a commitment to protect the NHS, and increase health spending every year.

Today we honour that commitment in full.

Total health spending will rise each year over and above inflation.

But the data tells a different story. Figures from the Treasury (see Table 1.9) show that the NHS spent £101,985m from April 2010 to April 2011, down from £102,751m the previous year, and a real-terms cut of £766m.

David Cameron is fond of boasting that the NHS budget will rise in cash terms by £12.5bn but what he forgets is that much of this increase will be swallowed up by rampant inflation. Based on the latest GDP deflators (the measure used to determine whether spending is rising in “real-terms”), health spending will fall by nearly 1 per cent in real-terms.

Sure Start: not protected after all

Osborne couldn’t have been clearer in his commitment to Sure Start, the network of childrens’ centres set up by the Blair government.

Sure Start services will be protected in cash terms, and the programme will be refocused on its original purpose.

But the pledge was not met. Rather than ring-fencing the Sure Start budget (as Osborne’s words implied), the coalition decided to amalgamate it into a new “early intervention grant”, which also includes funding for programmes related to teenage pregnancy, mental health and youth crime. These programmes received nearly £2.8bn in 2010-2011 but, this year, they will receive £2.2bn – a real-terms cut of 22.4 per cent.

As a result, as my freedom of information request revealed earlier this year, Sure Start centres have already begun to close across the country. The latest figures suggest that at least 47 have been closed or will be closed in the near future. For this reason, Britain is not only becoming a poorer country but a more unequal one too.

Content from our partners
What you need to know about private markets
Work isn't working: how to boost the nation's health and happiness
The dementia crisis: a call for action