As far as Britain’s economy is concerned, the spending review, just published, changes little. There was the “reprofiling” predicted first in the Financial Times, but it amounted to only £2bn a year of additional gross capital expenditure. This will not make the difference between stagnation and recovery. The Treasury is right: there is no Plan B.
The big news is pretty much as expected:
- It’s not a good time to be working in the public sector. You have a good chance of losing your job, you will have a pay freeze over the next two years and you will see your take-home pay cut by an increase in your pension contribution averaging 3 per cent.
- The chancellor has found another £7bn of further savings from social benefits, which have limited (to some extent) the cuts to public services.
- After this small mitigation of cuts, departmental budgets will still face the most severe constraints in the post-War period. These will be noticed. They act to bring down the deficit significantly so that public borrowing is expected to be 2 per cent of national income by 2014-15.
- Health, schools and overseas aid have been relatively protected. Recipients of benefits, public sector employees and local government are the big losers.
- The government claims the measures are fair. Because fairness is in the eye of the beholder, it has chosen a method of presenting fairness to give this result. This is policy-based evidence-making on heat.
What has really saddened me is the presentation of the spending review. George Osborne is a skilled historian of Gordon Brown. Rather than rejecting his tricks of obfuscation, he has embraced them as a top pupil emulates his school master. Here are four examples that grate:
- The concept of public sector net investment has disappeared from the documentation. It appears this is because changes to depreciation would make the figure look worse than in the June Budget and the Treasury does not want to show the fact this measure of capital is more than halving. Amusingly, the Treasury’s fiscal mandate is dependent on an estimate of public sector net investment which has now been deleted. Gross investment is the new mantra because it does not fall as quickly, but much of that gross investment is merely to maintain the public capital stock.
- Mr Osborne cannot tell the difference between apples and oranges. In his peroration, he compared a notional 25 per cent cut in real departmental spending for non protected departments, which was in his Budget (actually, it wasn’t but that is a different story), with Labour’s 20 per cent notional cut in their unprotected budgets. But because Labour and the Conservatives were proposing to protect different departments, the numbers are simply not comparable. Not even close. Because Labour wanted to consolidate the budget more slowly, its spending cuts to departments would have been smaller. This sort of deception really should be beneath a chancellor of the exchequer. Sadly, it is not.
- Mr Osborne also switched between different bases of comparison throughout his speech. It was impossible to know whether the numbers were in real or nominal terms, over one year or four years, annual or cumulative. It was a mess.
- The distributional tables still do not include the benefit changes which hit the poor hardest despite the Institute for Fiscal Studies having done the work for the Treasury. While I have sympathy for the Treasury in that it is impossible to cut deficits and spending without making regressive changes, I cannot believe they have failed to front up to this fact rather than wait until they look foolish again in a few days.