Spending Review: A fiscal non-event
What was most striking about this week's spending review was its crushing indifference
I am a bit of a geek when it comes to fiscal events. As a former Treasury official, I tend to watch them eagerly for nostalgic reasons. Time erodes the long hours and eternally shifting goal-posts, leaving a longing for the fun of knowing the full package before everyone else – having worked hard to help create it.
Fiscal events for me no longer have quite the same interest, but I still await them keenly and generally read the documentation closely. It helps that I have job which requires me to take an interest, and a wider social circle which does the same.
All of which means that the crushing indifference with which this week’s event was greeted was quite striking. I know almost no one who cares about the Spending Review or thinks it makes the slightest bit of difference. The numbers are trifling in the overall scheme of things. Total government expenditure for 2015-16 is set to be £745 billion. To get there, the Government is cutting a mere £11.5bn. Most of my clients were disinterested, and my friends – even those who worked on it – have been underwhelmed.
As a former Treasury bureaucrat, two things this week strike me as interesting. The first was that this was a one-year event. The second was the two-stage process, in which Osborne announced spending for one year only and then, the day after, Chief Secretary Danny Alexander unveiled £100bn of infrastructure spending plans through to 2020 – in which year, we will be deciding whether to return the Government after this one.
The fact that the review covers only one year has interested me for a while. The current spending period, which covers the financial years from Autumn 2010 to April 2015, does not quite cater for the period during and after the upcoming general election. The logic therefore goes that another spending review is required to cover the time until the incoming Government has the chance to put its affairs in order.
This, of course, is nonsense. Although a Budget is required to reimpose income tax, a spending review is not needed to roll over current spending. The Government could perfectly easily roll current expenditure levels over (and seek whatever parliamentary authority is required at the time) without this week’s circus.
A spending review of a year is also a rather odd basis upon which to do spending reform. Any major fiscal event (Budget, Autumn Statement, Spending Review) is an exercise in balancing the books over the time period in question. It is therefore most advantageous to conduct an exercise over as long a time-period as possible. For a one year programme, the temptation will be to look for short-term gain (salami-slicing the budget) in a way which helps ensure everything adds up, but mitigates against potentially more sustainable public service reform.
The ‘official’ reasoning behind this exercise has been explained to me as either to cover the fact that they had forgotten they would need to cover the period of the election itself or – more likely – the Government in 2010 anticipated that it could afford a giveaway spending review before the election, and therefore left the space to have one. Of course, things haven’t quite turned out like that, so Osborne is using it instead to put Labour on the spot. .
In this vein, the infrastructure announcements are clearly about shooting Labour’s fox – bringing forward infrastructure spending to offer a boost to the economy, and simultaneously denying Balls political oxygen by doing exactly what he has been calling for, thereby leaving him with no script. So far, so Gordon Brown.
And here’s the rub. Prior to the spending review, Labour had announced that it would accept the coalition’s spending plans. This then got ‘refined’ to the novel idea that it would only borrow to invest. Which is, of course, where this all started – when Gordon Brown coined the ‘Golden Rule’ which said that over the economic cycle, the Government will borrow only to invest and not to fund current spending.
Gordon Brown was accused of manipulating the golden rule in pursuit of his master plan to crash the public finances. Of course, I can’t believe that would offer Ed Balls any issues. After all, it’s not like he was in any way involved last time, so spouting the same lines surely could not present any credibility issues. Right?
James Dowling is a former Treasury official. He is now a public affairs consultant working for Fleishman-Hillard, specialising in financial services and a member of the Conservative Party. He writes for commentator in a personal capacity
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