Now we are in election mode hardly a day goes by without one or all the political parties making yet another pledge on public spending despite the supposed dire state of the public finances.
A Treasury committee report however soberly reminds us that current government plans envisage cuts of 41% on non-protected government departments by 2020 which simply cannot be achieved without a huge impact on services.
The latest ‘mine’s bigger than yours’ on spending concerns education with Labour promising to stick to the Department for Education’s £58bn budget ‘in real terms’ each year to 2020. This follows the Conservatives promising to maintain the schools budget at the current per pupil level.
The Treasury select committee by coincidence produced its own report on last December’s Autumn Statement on February 13. This reminds us that the Treasury’s supplementary target, for public sector net debt as a percentage of GDP to be falling by 2015/16, continues to be a mirage; in fact the Office for Budget Responsibility has now for the fifth time in a row said this target will not be met.
Tax revenue is also failing to rise in line with GDP growth because most of the increase in employment has been at low pay level rather than in pay rises across the board. In fact you can see why the Prime Minister the other day exhorted employers to pay more because more pay means more tax income.
The MPs also recommend a study into the impact of immigration on wage levels which on the one hand has ‘held back’ pay in the service sector, according to the Office for Budget Responsibility’s evidence, but on the other also provides 35% of the NHS workforce without which it would be ‘in dire straits’ (says the OBR).
Both the OBR and the Institute for Fiscal Studies argue that in the next five years 88% of fiscal consolidation will come from spending cuts and only 12% from tax rises. The government’s plans envisage reducing total public spending to 35.2% of GDP by 2020 from a peak of 45.3% in 2009/10.
But the government also insists it will continue to ring-fence education, health and international development meaning cuts of 41% on non ring-fenced departments between 2010/11 and 2019/20.
In an under-statement Paul Johnson, IFS director, told the committee this would mean ‘significant change in the way things are delivered.’ He favoured more crackdowns on welfare and tax avoidance.
