public spending

David Cameron, prime minister, gave his big speech on his economic inheritance (bad) and plans (bold) today. And the one piece of news in the speech was the following number regarding debt interest:

“Based on the calculations of the last government, in five years’ time the interest we are paying on our debt is predicted to be around £70 billion. That is a simply staggering amount.”

This is a very useful number, one which the previous government shamefully hid from the public. What does this mean? For a start it implies the Treasury expects to pay an average interest rate of around 5 per cent on the £1,406bn deficit it expected in 2014-15. But Mr Cameron had a more vivid explanation of the figure’s relevance.

“Let me explain what it means. Today we spend more on debt interest than we do on running schools in England. But £70 billion means spending more on debt interest than we currently do on running schools in England plus climate change plus transport.”

Though these figures of departmental spending are extremely difficult to get, there are ways to make his claim add up with the combined total of the three spending groups coming in just below £70bn. I won’t bore you with them. But the important point is that the prime minister has just announced the new coalition government’s first fiscal rule.

If debt interest in five years’ time is more than 2001-11 spending on schools, transport and climate change, this is terrible. But if it is lower, things are fine. This fiscal rule is weird.

If you think I am exaggerating Read more

Getty ImagesThe first £5.75bn of spending cuts has just been announced by George Osborne, Conservative chancellor, and David Laws, his Liberal Democrat chief secretary, in the Treasury garden. It is something of a spectator sport for large numbers of Treasury officials, who seem either keen to get the knives out, or who have too little to work on and are ripe for the chop.

But these cuts represent just the starter, “the first steps” as Mr Laws admitted. The main course is coming later. This near £5.75bn (the announced £6.2 net the £500m which will be recycled back into frontline services) is tiny compared with the £40bn to £50bn that is coming from 2011 onward. So it is worth not getting too excited by today’s cuts. Read more

Treasury officials have just finished giving evidence at the Treasury Select Committee on last week’s fiscal plans announced by the UK government. Three things materialised:

  • Treasury officials appear to have been told they are not allowed to reveal the government’s plans for cutting departmental spending from 2011 to 2014. Instead, they evaded the issue, obfuscated and squirmed. It was a terrible spectacle. Worse, it is absurd that ministers are too scared to tell the public what is projected for

 Read more