Cuts or not?

Burning Our Money explains the old fallacy about cuts.

'So the cuts are going to be long and deep, which nobody can deny.

Well, nobody that is, except extremely naive people who simply look at the government's spending projections. People like John Redwood, who at the TPA's budget briefing today, drew attention to the plain fact that under the Osborne plan, total public spending is not facing any cut at all. In fact, it is projected to increase from £697bn this year to £758bn in 2015-16, a rise of 9%.

...

when we look at today's spending plans in those simple old naive cash terms we find the following:

1. Departmental spending on current services (including all those doctors and nurses etc) is planned to be roughly unchanged over the next 5 years
2. Departmental spending on capital projects is planned to fall by £13bn pa (23%) - the entire cut decreed by Darling
3. Annually Managed Expenditure (largely welfare) is projected to increase by £74bn (23%)

So apart from capital spending, where are those cuts?

The fact is that when people speak of cuts, what they're usually talking about is the cash spending plan deflated by the projected increase in average prices across the economy (GDP deflator). As noted above, total cash spending is projected to increase by 9%. But with average prices forecast to increase by 13%, the inference is that real spending is planned to be cut by 4%, with much bigger cuts for many individual programmes.

But what if the price of the stuff the public sector buys increases by less than 13%? Sure, we know that for most of the last 13 years, the price of public purchases (including labour) has increased much faster than average economy-wide prices, but that's not an immutable law.

If through a mix of pay freezes/cuts and contract renegotiation the price of government purchases could be held down, then suddenly the "cuts" start to disappear. Indeed, if the price increase could be held below 9% over the 5 years, then overall public spending in real terms doesn't get cut at all.'

I wonder if the BBC will allow this sort of narrative to affect their Budget attacks.