By Harry Phibbs
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Has public spending been cut by the Coalition Government? Figures from The Treasury suggest that in "real terms" (using 2011 prices) spending in 2009/10 was £707.7 billion. In 2011/12 it had fallen to £690.9 billion. So that means cuts of just over 2%. But so far, in this financial year 2012/13 public spending has been rising roughly in line with inflation:
The ONS says:
For the period April 2012 to January 2013, central government accrued current expenditure was £525.7 billion, which was £13.9 billion, or 2.7%, higher than in the same period of the previous year, when central government current expenditure was £511.8 billion.
Sooner or later there will have to be real cuts in total state spending. Whatever your views on the politics or morality of tax increases, they just don't work when it comes to economics. We are at a point where for many specific taxes, (for instance Graham Brady has looked at Air Passenger Duty) the probability is that tax revenue would be increased by cutting the tax rate. And it is fairly clear that increasing the overall tax burden constrains growth and total tax revenue.
Cue shroud-waving. Lots of earnest talk about how "painful" cuts are going to be. However the experience of local government, my regular perch on this site, suggests that despair is misplaced. There have been real spending cuts in local government – 8.7% in 2011/12 alone, and this year saw another 3.5% cut . The cuts were preceded with much talk of doom and gloom. Yet satisfaction with council services has increased.
One lesson for central government from town halls is how boring the big spending cuts can be. Huge savings can be made on items like shared management of services to reduce back office costs. Freezing recruitment. More online transactions. Renegotiating contracts. Cutting spending on consultants and agency staff.
This is why if George Osborne did sneer at Adam Afriyie for raising the potential of £6 billion of savings through e-invoicing then he was quite wrong to do so.
There is another example of a potential boring but important spending cut for which M Osborne has direct responsibility. In 2010 the Institute of Economic Affairs pointed out that the administrative costs of tax collection are proportionatley much higher in the UK than for other countries. It costs the Government £5.1 billion a year (and the compliance costs for the private sector are much more). Simpler taxes would reduce the cost of tax collection.
A few months earlier the IEA published another paper – this time detailing how £2 billion of the adult education budget is wasted.
There is not a shortage of nominations. The Barnett Formula – providing an extra £12 billion of spending for Scotland, Wales and Northern Ireland – might not be quite boring enough to abolish straight away. But wouldn't it be sufficiently dull if it was phased out over, say, a ten year period?
Of course there are also the more controversial areas – welfare spending, overseas aid, our membership sub for the European Union. These are the examples more usually mentioned in newspaper leading articles on when Nigel farage is on the stump in Eastleigh. Cuts in these areas tend to be less realistic politically – at least in the short term. We are not going to leave the European Union in the financial year 2013/14. The pledge to increase Overseas Aid has been very clear. There are limits to what the Lib Dems will agree to in cutting welfare spending.
Conservatives should be realistic about these constraints.
In return that does means Mr Osborne needs to get stuck into the boring stuff of delivering some serious reductions in spending.