George Bridges: The cuts will hurt, but the latest CPS analysis suggests spending will only return to 2009 levels
George Bridges is on the Board of the Centre for Policy Studies and writes a commentary here on today's new CPS publication - A shower, not a hurricane: the modest nature of the proposed cuts - which has been written Dr Tim Morgan.
“When we are done with these cuts, spending on public services will actually still be at the same level that it was in 2006.” When David Cameron said that last week I thought he’d gaffed. How many times had I read we’re about to see the deepest cuts to spending since the Second World War, conjuring up images of a black and white, post-war Britain of bomb sites, chill blains and rationing? So I checked online – only to find Nick Clegg saying the same thing. “I've heard some people say that the cuts we are making are somehow taking Britain back to the 1980s, or the 1930s. Dismantling the state. It isn't true. Even when all the cuts have happened, we will still be spending 41% of our national income – the same amount we were spending in 2006.”
Like Alan Johnson, the new shadow chancellor, I am no economist, so I find all this quite confusing. One minute it’s back to Churchill, the next back to – oh no – Brown. Are we about to witness savage and swingeing amputations, or simply a snip here and a tuck there? Mr Johnson is not helping matters. At the weekend, there he was busy fuelling the fear and fury. All that was missing was the sandwich board proclaiming “the end of the world is nigh”. So for his sake, and perhaps yours, let’s take a trip down memory lane back to 2006 to see how bad life was then.
Gordon Brown told the Commons that “as a result of our success so far, total net public investment, which was just £5bn a year in 1997, is this year five times as high - £26bn. Schools capital investment, which was just £600mn in 1997, will in the coming year be £6bn. Even after inflation, we have invested a total of £32bn in modernising our schools in just nine years compared to just £14bn in the 18 years before - twice as much in half the time. And to meet the infrastructure needs of business we have been able to double investment in skills, transport, and science”. Do you remember that Alan – or were you sleeping through it like the rest of us?
Behind all those boasts about gargantuan spending, look at what was happening. Value for money from public services fell between 1997 and 2007, according to the Office for National Statistics. Meanwhile, the public sector was living high on the hog, employing almost 6 million people – 600,000 more than in 1999. The total salary bill for the jobs advertised in Guardian Society in 2006 was £767,343,282 (excluding pensions and perks) – and the average starting salary for full time positions was £11,405 more per annum than the mean private sector wage. For the Floating Support Services Deputy Manager, the Cardboard Citizens Managing Director, or the Assistant Director for Well-Being and Community Services (salary £85,000), 2006 was not exactly a year of penury.
By the time Brown had finished, in the first decade of this century Labour had increased spending by a whopping 53% in real terms. Put that another way, spending in 2006 was already 26% higher, in real terms, than it had been just seven years earlier. So going back to 2006 might mean putting the state on a diet for a few years, but not “nil by mouth”.
The thing is, according to a new report out today by the Centre for Policy Studies, even that analysis overeggs the pudding. Spending will not be cut back to 2006 levels in real terms. On the basis of data in the Emergency Budget, by 2015-16 real terms spending will be actually higher than it was last year. Yes, departmental spending - outside the NHS and overseas aid – will fall, but by 7% in real terms. So the cuts, even after you have taken inflation into consideration, take us back just one year, to 2009, not 2006.
“Take us back just one year” – that makes George Osborne sound weedy. He isn’t: few governments have managed to ratchet back the amount government actually spends. “Thatcher’s cuts” have entered political folklore. Yes, spending did fall in real terms, but only in two years - 1985-6 and 1988-9 – and then only because social security spending fell faster than planned. Conservatives forget (or choose to forget) that they increased public spending at an average rate of over 1 per cent a year.
So the cuts will hurt, and ministers will need iron resolve to see them through. The interesting question will arise much later, in 2015, as to whether Conservatives and Lib Dems agree that the government should spend more than four out of every ten pounds the nation earns. Will they have managed to implement Heineken reforms, refreshing the parts of the state that other governments could not reach, enabling to argue that such spending is justified – or will they, like Labour, have invested but not reformed? Will they go into the next election pledging to “share the proceeds of growth” – or cut spending so that taxes can be cut? But that is for another day.
For Alan Johnson, all this is academic – as is his need to bone up on the economics. From bitter experience of working in Number Ten during the 1990s, I know that to the electorate, a cut is a cut. If Mr Johnson can pinpoint measures that touch the public nerve, whether the Government is cutting spending back to 2006 or 2009 quickly becomes irrelevant to voters. The fact that the Coalition is reversing just a fraction of the Brown spending boom will not register – and the Floating Support Services Deputy Manager, the Cardboard Citizens Managing Director and the Assistant Director for Well-Being and Community Services can all crack open some more champagne.