Magazine article Public Finance

Cutting It Fine

Magazine article Public Finance

Cutting It Fine

Article excerpt

Few will have been surprised by the chancellor's Pre-Budget Report forecast that his self-imposed fiscal rules will continue to be met. On the tax side, Gordon Brown announced a £3bn increase, the majority of which is on North Sea oil companies. Given previous decisions, this is also not surprising - and, unless it leads to higher oil prices, will be felt by a combination of the companies' shareholders and employees.

A larger deviation from past behaviour was the fact that the chancellor chose to pencil in cuts in public spending for the period that will be covered by the 2007 Comprehensive Spending Review.

Total public spending is set to increase from 37% of national income in 1999/2000 to 42.8% in 2007/08, the last year for which we have 'firm and fixed' spending plans. The next Spending Review, which has been delayed by one year to summer 2007, is intended to be a 'Comprehensive' review. This apparently means that the value of all existing programmes will be considered, rather than just new ones. It will cover the three years from April 2008 to March 2011.

The chancellor's Pre-Budget Report has pencilled in increases in total public spending, after economywide inflation, averaging 1.8% a year over this period.

If delivered, these plans will cut total public spending back to 42.1% of national income in what is expected to be the beginning of the next Parliament. This tight control of spending growth would be consistent with the idea put forward by David Cameron, the new leader of the Conservative Party, that the chancellor should 'share the proceeds of growth between public spending and tax cuts'.

However, would it be consistent with the government's stated ambitions for improving the guality of public services and increasing the incomes of the least well-off pensioners and children?

The very large real increases in spending that the National Health Service has received since April 2002 are based on the calculations of the Treasury-commissioned Wanless Report. This suggested that, even if the NHS were able to operate at the most efficient level assumed, it would still require increases of 4.4% a year, after inflation, over the period to be covered by the forthcoming CSR. The Treasury is currently reassessing the calculations in this report, so they could be revised either way. …

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