Making sense of cuts

By Peter Barnard

David Cameron was being disingenuous in the Conservative poster “I’ll cut the deficit, not the NHS.”

Labour has already announced, on the public record in Pre-Budget Report 2009 (Table B13) that it also intends to cut “the deficit.”

Here are the numbers:

So – question 1 for Mr Cameron – what are his numbers between this fiscal year and fiscal 2014/15 for “I’ll cut the deficit?” Are they the same as Labour’s declared numbers – or greater? And, if greater – what are the consequences?

For this post, I will confine analysis to the “current expenditure” anticipated in the PBR. In that document, Labour announced that gross capital expenditure is going to be reduced from £69 billion in 2009/10 to £47 billion in 2014/15 (table B13, again).

Why current expenditure? Because it is current expenditure that provides the day-to-day resources when you make use of public services.

Resources and “AME”

Current expenditure is divided into two parts : Departmental expenditures (Health, Education, Defence, Transport and so on, called “Resources”) and Annually Managed Expenditure (AME), which contains “transfer payments” that pay for social security benefits, tax credits, the BBC, gross debt interest and other items.

It could be said (apart from administration costs) that AME is not “government expenditure” at all because all AME does is collect a pound in tax (or National Insurance) from Mr Smith and passes the same pound on to Mrs Jones.

AME between now and 2014/15 needs to be assessed because “the cuts” that the world and his wife refer to relate to the level of public services that may be provided in 2014/15 – health, education, police, local government, defence, etc.

AME is estimated at £265 billion for 2009/10 (Table B15 in PBR 2009). Taking into consideration the increase in the number of those receiving state retirement pensions, the increase in debt interest payments, and assuming that unemployment in 2014/15 is no higher than at present, AME could be £349 billion in 2014/15. At present, no-one – including the government – is telling us what they think AME will be in 2014/15.

Possibly, and tentatively, we can arrive at the following assessment:

Total Current expenditure 2014/15: £729 billion

AME: £349 billion

Departmental expenditure 2014/15 (DE): £380 billion

This compares with a current DE of £342 billion.

A further complication: DE contains depreciation. This fiscal year, depreciation is estimated at £19 billion; in 2014/15, the estimate for depreciation is £24 billion, so that:

Actual services 2014/15: £356 billion Actual services 2009/10: £323 billion

And, another complication: £356 billion in 2014/15 is not the same as £356 billion in 2009/10, because of inflation, however measured. If we apply the “GDP deflator” between now and 2014/15, the comparable DE spending is £316 billion: minus 2.2% for, in the aggregate, health, education, defence, police, local government, transport, Scotland, Wales, Northern Ireland, etc.

And – yet another complication: the population is forecast to increase from 62.1 million in 2009/10 to 64.3 million in 2014/15, and increase of 3.6%. This would seem to imply a total reduction in services per capita of 5.6% by 2014/15.

What this may mean in practice, perhaps, is an increase in “waiting times” for public services. But it does seem a long way away from the “17% cuts” in local services numbers thrown about.