« Congressman Jeff Fortenberry: Big Society Republican | Main | Can we be grown-up about grammar schools? »

Work and prosperity
23 May 2012

Cutting too far, too fast – or not at all?

The left accuses the Coalition of cutting ‘too far, too fast’. However, the Government's critics on the right say that there haven't actually been any cuts. The latter case was made last week in a report from Tullet Prebon – which notes that Government spending has not fallen and that public debt is still rising.

So is this the truth about austerity in the UK? That it doesn’t, in fact, exist?

Nick Pearce, director of the Institute of Public Policy Research, says we need some perspective:

  • “...let us imagine a world in which the biggest drop in output since the 1930s, which has involved the UK experiencing a double dip recession, did not lead to an increase in the government’s debt stock. The government would have had to cut spending and/or raised taxes by over £500 billion between 2008/09 and 2011/12, equivalent to more than the entire NHS budget every year.”

In other words, any notion that the Government could somehow have brought about an immediate halt to the growth of our indebtedness is unrealistic. But what about the more substantial point – that austerity can’t be happening because Government spending isn’t falling? Pearce reviews the figures:

  • “Spending increased slightly in 2010/11, despite the Coalition’s in-year cuts in the June 2010 budget. Its deficit reduction plan only started in earnest in 2011/12. In that year, according to the OBR, central government current spending rose by 2 per cent, from £604.8 billion to £617.0 billion.”

So, yes, no overall cut – so far. But, as Pearce points out, there's a vital distinction to be made between different kinds of spending:

  • “…this [2 per cent rise] was entirely accounted for by debt interest and net social benefits. Current spending on public services fell by 0.5 per cent – the first fall on a financial year basis since 1955/56… If you think these current public spending cuts have had no effect, you’ll need to explain why public sector employment has fallen by 410,000 over the last two years and is at its lowest level since June 2003.”

On this reading, David Cameron is already outdoing Margaret Thatcher or any other Prime Minister of the last fifty years.

But, wait, there’s a twist in Pearce's tale. The figures given thus far relate to current expenditure. Capital expenditure, on things like roads and housing, has been hammered – falling by a quarter between 2010/11 and 2011/12:

  • “…which is why construction output has fallen, taking us back into recession in the first quarter of this year. Capital spending has the highest multiplier effect on output, which is why cutting it has a big impact during periods of recession or weak growth.”

But who took the decision to make this cut? Over to you Nick Pearce, director of the left-leaning IPPR:

  • “That cut, by the way, was a decision of the last Labour government which the Coalition inherited..."

So if cutting 'too far, too fast' really is depriving the economy of the necessary fiscal stimulus, then Labour should criticise its own actions, not those of the Coalition.


You must be logged in using Intense Debate, Wordpress, Twitter or Facebook to comment.

Register to get The Deep End delivered to your inbox.