Cuts? What cuts?

Cuts? What cuts?

Under Gordon Brown’s stewardship, the last Labour Government was spending £750 billion per annum and only getting £600 billion per annum in taxes and borrowing the difference. And they’d been doing this every year since 2002. Consequently the country ran up record debts, even before the financial crisis of 2008 hit.

Clearly something had to be done about this unsustainable position. Whether or not there should be cuts in Government spending is a hotly debated issue, and hardly a day ever goes by without a union official or public sector body complaining of ‘the cuts’. However what is the real position?

In money terms, Government spending is still rising. What’s more, it is set to carry on rising throughout the official forecast period. In 2016-17 Government spending will be about 10% more than it was in 2010-11. On that basis the cuts are an illusion.

When we take inflation into account, in real terms there are no cuts- real current spending rose by 1.5% in 2010 and 0.1% in 2011. Is it even forecast to rise 0.5% this year!

Yet total Government spending is starting to fall, but it is investment expenditure that is feeling the pinch. It fell 14% last year and is set to fall 4% this year. Many commentators believe that the coalition Government have got their priorities wrong- current spending should be cut not investment spending.

But there is a problem in cutting current spending- £1 in every £3 of current spending is now on benefits, courtesy of Gordon Brown’s tax credits system. Benefit spending has risen from 15% of Government spending in 1946 to 30% now. Trying to get that particular genie back into the bottle is going to be a monumental task for many different Governments in the decades ahead.

Even if the Government manages to get the Budget back in balance (ie each year we only spend what we get in in taxes) there is still the problem of how we pay back £1.3 trillion of debt.

And even with a balanced Budget, Government spending will still be 40% of GDP. That means on average every person would be paying over 40% of their income in taxes of one sort or another, whether they’re a fat cat or not!

For many this is far too high a percentage and the calls for even more drastic cuts to Government spending are starting to grow.