Fraser Nelson Fraser Nelson

The myth of cuts

Last week, Ed Balls warned against the effect of George Osborne’s vicious, front-loaded cuts. Today, we have an update in the form of monthly state spending figures. In cash terms, a new record has been set in state largesse. The UK government’s current spending was £51.7 billion in May, up from £50.6 billion in May last year (the last month of Gordon Brown). George Osborne has so far outspent Gordon Brown every month that he’s been in the Treasury. Even adjusted for the runaway inflation, the Chancellor has on average outspent Brown during his first 12 months:

To fund this extra spending, the Chancellor borrowed £27.4 billion from the public for April and May. Labour chirp today that this is more than the £25.9bn they borrowed in the same period last year. Angela Eagle has this to say: “cutting too far and too fast risks a vicious circle. The slower growth and higher unemployment George Osborne’s policies have delivered since his first Budget a year ago are making it harder to get the deficit down.”
Behold, a Balls optical illusion. And, as ever, one worth exploring in some detail. He wants us to believe that the low growth (and the contraction last winter) is the result of the harsh cuts. In cash terms, there have been no cuts. Adjust it for inflation, and the real-terms cuts have only just started. In the 2011-12 financial year, spending across government departments will fall by 4.1 per cent. Add debt and dole, and total state spending will be shaved by a gossamer 0.6 per cent. Is this “cutting too far and too fast?”
If Osborne had wanted to front-load the cuts, he’d have got this over with quickly. Even Barack Obama, who plans to spend like a drunken Keynesian in years to come, is having a brief contraction in state spending first — cutting more in one year than Osborne is doing in four.

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