- A disclaimer. Normally, in these To The Point posts, I like to make a graph myself and then stick it to the top of the page – but today is different. Today there are actually two graphs, and both were made by the Institute for Fiscal Studies. They illustrate a point I’d like to make. And, besides, they involve quite a bit of clever working-out, which I’d much rather leave that to the smart folk at the IFS. As my sensei once told me: if you can’t beat ‘em, copy and paste the graphs from their publications.
- An explanation. Remember Tuesday’s To the Point post about departmental spending? This is a variation on the theme. The IFS’s graphs show two components of those departmental expenditure limits: resource DEL and capital DEL. Resource DEL is the money that’s spent on current items such as public sector pay. Capital DEL is the money that goes towards investment projects such as new roads and hospitals. This accounts for roughly two-thirds of all the public sector’s capital spending. The rest is done by local authorities and public corporations.
- The first kink in the graph. If you look only at the solid line in the first graph, showing how resource DEL has been cut throughout this Government, one thing stands out: the slight increase in spending between 2012-13 and 2013-14. Until then, departments had been cutting their resource budgets by more than was envisioned at the start of this Parliament. But then the downwards trend was arrested. Why so? In the words of the IFS:
“Towards the end of 2012–13, it became clear that there was a significant chance that borrowing would increase slightly in nominal terms between 2011–12 and 2012–13. Anxious to avoid such an (economically meaningless but politically awkward) event, it would seem that departments came under pressure either to reduce spending or to shift it into the 2013–14 financial year.”
- The second kink. In a different way, the second graph also contains an example of politics changing the numbers. You’ll notice that, in 2012-13, the Government started increasing capital spending until it far exceeded their original intentions. This shift was something that I’ve looked into before. George Osborne, prodded on by the Lib Dems, had come to regret matching Alistair Darling’s capital spending cuts. He decided that a bit more building work could help the country’s recovery.
- Budgets are malleable. What all this demonstrates is the flexibility of the public finances. Those Budgets and Spending Reviews that the Chancellor produces aren’t exactly sacrosanct; they can be adapted, for the worse or for the better, on the fly. Which is yet another reason to take any government’s original fiscal plan with a whole heap of salt.