spending review

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. Read more