Sunday, 23 September 2012

Public spending 2

The lead story in today's Observer is Coalition cuts have been too deep, says key Nick Clegg aide:
In a severe embarrassment to the Lib Dem leader as his party conference opened in Brighton, it emerged that his recently departed director of strategy, Richard Reeves, believes the coalition has squeezed spending too tightly and been blind to the benefits of investing in the economy.

According to a pamphlet written by Reeves, the policy may have choked Britain's economic growth and pushed the country into the double dip, as Labour has repeatedly claimed.

Reeves's admissions are particularly incendiary because he only left his position at the heart of government weeks ago and was known to have Clegg's ear.
"Severe embarrassment" ? "Squeezed"? "Blind"? "Choked"? "Admissions"? "Incendiary"?

What has Mr Reeves said? Two paragraphs later, we find out:
Nobody knows for sure whether tightening at the pace set by the coalition government has choked off growth, or laid the foundations for recovery. For what it is worth, I think the coalition tightened a little more than necessary in the first two years; relied a bit too much on spending cuts rather than tax rises to fill the hole; and above all has taken a myopically conservative approach to borrowing for investment.
"A little more than necessary" ... "a bit too much" ... "myopically conservative" ...

Mr Reeves accuses the coalition government of being a bit short-sighted and maybe not getting the balance quite right when it comes to the economy. And the Observer turns that into an incendiary confession. What kind of journalistic values are these?

Answer, the same kind of journalistic values that allow the newspaper to cover these important questions without providing any facts.

Anyone who has read Public spending 1 knows that in the 10 years between 2000-01 and 2009-10 public spending rose in real terms from £443.7 billion to £705.6 billion. That is a rise of 59% in 10 years. Unprecedented, unsustainable and irresponsible.

Public spending in 2011-12 was £694.9 billion, a cut of 1.5% on the peak 2009-10 figure, you might think, but no, public spending actually rose in the first year of the coalition government, 2010-11, to £706.1 billion. That's the peak. So far.

1.5% is a very small cut in anyone's language. Mr Reeves thinks it counts as "a little more than necessary". Others may feel that, against a background trend rise of 59%, it hardly counts as trying.

That's public spending. How about borrowing? Mr Reeves thinks the coalition government has been myopically conservative about it.

Have they? The Observer doesn't provide any figures to help its readers to decide. Luckily, the Office for National Statistics does, in Government deficit and debt under the Maastricht Treaty - Calendar Year 2011:

Calendar Years
Government Deficit and Debt
2007
2008
2009
2010
2011
General government deficit £bn
38.0
72.0
159.2
148.5
124.6
as a percentage of GDP
2.7
5.0
11.4
10.1
8.3
General government debt at nominal values £bn
624.7
753.6
950.8
1108.4
1250.3
as a percentage of GDP
44.4
52.6
68.2
75.7
82.9
Government debt at 31 December 2011 stood at £1,250.3 billion, having increased in nominal terms under the coalition government by (1250.3-950.8=) £299.5 billion since 31 December 2009. The coalition government plan is to increase government debt by £600 billion over the course of this parliament. So not only have they already borrowed one lot of £300 billion, they plan to borrow the same again.

Mr Reeves finds that "myopically conservative". Others may see it as myopically imprudent.

To all intents and purposes, public spending hasn't been cut, borrowing has continued and it's not going to stop. That's what Mr Reeves wants and that's what the government has done. He disagrees with some of the detail. As economic advisor to the Deputy Prime Minister until a few weeks ago Mr Reeves was in a position to affect the choices made. Now he has left that job.

What are the right choices to make?

Can we keep borrowing forever? Who from? At the moment, through quantitative easing, we're buying a lot of our own debt. How long can we do that without trashing the exchange rate even more, sending inflation through the roof and interest rates along with it? Who else will buy our debt? Why would they? What interest rate will they require? What happens to Iain Duncan Smith's Universal Credit in particular and the welfare budget in general? These are important questions. What's the answer?

What are the first four words of Mr Reeves's quoted above?
Nobody knows for sure
That is the point a responsible newspaper would emphasise. The Oberserver doesn't.

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