The elastic purse
Skinflint
If you were more confused about government spending after Denis Healey's White Paper than before, it seems you were not alone. Newspapers, politicians and unions got their knickers into a collective twist about the meaning and implications of what was said, and even more about what was implied. For instance, was spending actually going up or coming down, and if falling was it by E2,700 million, by £3,000 million or by E2,400 million ? To be fair, the answer is yes.
Spending this year will be higher than planned but part of that is caused by the boggling size of the government debt requiring interest payments (but see Mr Davenport), and part by Healey's memory of Keynes saying that governments should spend during a depression. The steady rise in spending over the next five years is also a result of the profligate borrowing, and once debt interest is deducted state spending is programmed to fall.
Expenditure, this year, already treble the level expected in the 1971 White Paper, will rise and be some £1,600 million higher in real terms (i.e. nothing to do with inflation) than was predicted by these same people just a year ago. Healey then announced cuts, but now there is an increase (which augurs ill for the current round) and Whitehall is blaming this failure partly on the fact that deeper than expected recession has increased dole payments etc. If that were really true the planners are even dimmer than we thought.
And anyway next financial year (1976-7) will not quite fall either. If you deduct interest it does, but a year ago it was thought by the Treasury that it would be £500 million lower still. (The Treasury is hoping now that cash ceilings will prevent the usual overspending on top of this, but Of course they won't.) And now they are saying, I think, that it will not be until the year after that-1977-8—that actual spending will fall below the level projected in the White Paper of a year ago. I hate to labour the point (no pun intended) but one should emphasise that this does not mean an actual cut in government's money needs since interest payments ensure that these will continue to rise.
All of which prompts three Skinflint laws of public expenditure : 1 Future cuts never materialise.
2 Spending forecasts are lower than outturn.
3 Circumstances are always exceptional.
But that the Chancellor should even go through the motions is a heartening sight for believers in democracy. As a good Socialist Healey must believe that the more of a nation's wealth the state controls the better it is for humanity. Voters have realised, though, that they are not getting good value for the extra money they have spent on the public manpower that caused the state share of gross domestic product to rise from 42 per cent fifteen years ago to 60 per cent now.
Going through the motions is a gesture but the White Paper is even less drastic than casual glances might indicate. Delays in capital projects are the main form of saving, although the Select Committee pointed out this seldom produced the desired effect since such 'cuts' are disruptive despite being illusory. No specific civil service manpower cuts are announced and by 1979-80 spending is overtly scheduled to start rising again.
In fact closer inspection reveals that the whole thing is just an exercise to help groggy British industry find the muchneeded cash for the impending upturn. That also means that, to take advantage of it, balance of payments must be improved, inflation more quickly controlled (another hint of tougher pay policies?) and there is a clear warning that private consumption can grow little if at all. The White Paper in fact is relying on industrial growth and stability of government spending as the way to contain the state's share. I am prepared to lay odds government share of GDP does not fall, just as previous attempts by Cripps and Jenkins—which were just as half-hearted—failed as well.
But even the cuts that do materialise should produce little elation among taxpayers since food and nationalised industry prices will rise with the removal of subsidy, and taxes are going to rise although the White Paper admits the level is already too high. That is touchy ground since the Government is currently trying to woo unions into pay curbs with promises of tax cuts. Britons are reaching the limits of tax tolerance and if Healey has misjudged the oft-cited Dunkirk spirit, the Socialists will lose the next election. He is after all trying to prune as much as the left will allow and tax as high as the centre will tolerate. The package announced is intended to steer accurately between the two to win an election in two years' time.
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