Darling carves up the spending pie

It’s the eve of the Pre-Budget Report, and the lunacy has already begun. Tomorrow’s FT says that Darling will copy the Tories’ plans to protect the NHS budget – and throw police and schools in to the protected status as well. This is introduced as “the biggest squeeze in pubic spending for a generation,” with the headline figure of 14 percent cuts. How to make sense of that? My guide:

1. Any sentence that starts “A Labour government would…” can be ignored. Darling can promise to fund free beer for everyone after 2011 – he won’t be in office. These are decoys for the media: the wilder his claims, the worse he expects to lose.

2. We already know it will be “the biggest squeeze for a generation” – Budget 2009 involved 7 percent cuts over three years (in the small print). The FT story says Darling’s stuff is “fiscally neutral” so its all within that budget. Any department that is protected means the squeeze is bigger in the unprotected departments: hence the Tory thing where, by protecting the DoH, they have to cut 10 percent elsewhere. A fact which caused Labour to dub Cameron “Mr 10 percent”…

3. The 14 percent figure can be calculated if the overall spending envelope stays the same, and certain parts of the budget are cut. But “schools” is not the same as “education” – “hospitals” is not the same as the “Department of Health budget”. There won’t be a spending review: either tomorrow or (I suspect) before the election. So this cannot really be broken down. But the FT will have made some assumptions.

4. Darling “has concluded that it is too early to begin a more ambitious assault on the deficit because of fears that deeper spending cuts could choke off the recovery,” says the FT. Concluded it’s the wrong side of the election, I suspect. This is all about the election.

5. “Hospitals, schools and the police will receive modest real terms spending rises between 2011 and 2014. But these will be expected to be funded by efficiency gains, tax rises and the scrapping of what Gordon Brown, the Prime Minister, calls ‘unnecessary programmes’.” Basically, the “efficiency saving” is a figure drawn from thin air. It’s a target, drawn so you can claim you are “protecting” various services.

6. “The deficit is expected to peak this year at about £180bn”. I suspect the FT is taking a flyer on this, but most independent forecasts agree. The debt situation will be worse, but not much worse, than Budget 2009.

All told: this story is politically interesting but not fiscally significant. It’s all about how Darling would carve up a pie that he will be nowhere near by 2011.