The £35bn question - is it really a cut?

The Tories plan to spend £35bn less than Labour by 2011-12, but that does not necessarily imply they would slash spending...


The row over Labour's repeated accusation that the Tories are planning a £35bn cut in public services came to a head with the unveiling of a yellow "warning" poster.

The £35bn figure is a genuine one, but there is much disagreement about whether it is fair to describe it as a "cut".

The figure is the difference between the total amount the Tories and Labour plan to spend by the financial year 2011-12, if they win the election.

Government spending for the current year, 2004-05, is £484bn. The Conservatives plan to increase it to around £665bn, while according to Conservative estimates, Labour plans to spend around £700bn - a difference of £35bn, or five per cent.

In nominal terms, therefore, the £35bn is just a smaller increase, rather than a cut.

In relative terms, however, it could be described as a reduction. Both parties are able to plan spending increases because the economy is expected to grow.

Labour's existing plans see government spending growing at the same rate as the economy, remaining at around 42 per cent of national income (Gross Domestic Product).

The Conservatives plan to let it grow at a slower rate than the economy.

By 2011-12, the Tories plan to reduce Government spending to 40 per cent of GDP.

So that's what the £35bn figure amounts to - the difference between 42 per cent and 40 per cent of GDP by 2011-12.

An issue of semantics

As Shadow Chancellor Oliver Letwin himself put it, in February 2004: "What I want to do is to have the growth in public spending be about one per cent lower each year than the growth of the economy, and that produces a dividend which is indeed, by 2011, around £35bn a year."

In relative terms, therefore, it's certainly a reduction. Whether that makes it a cut, a slowing down, or even a dividend, is an issue of semantics.

Of course, figures for 2011-12 can only be projections, referring to a date two elections away. Labour hasn't announced firm plans for that year (though they haven't contradicted the Tories' projections).

In any case, the figures are subject to review in the light of events - a fact you wouldn't guess from looking at this poster.

In addition, the £35bn figure has created some confusion, as by chance it appears twice in the Conservative Party's plans.

The James Review

The Party's review of the state of public finances, led by businessman David James, identified £35bn of "savings" from cutting what it views as wasteful spending in Whitehall. This includes the scrapping of 168 public bodies and a reduction of the civil service headcount by 235,000.

These savings are meant to come into effect by 2007-08. However, it's not really fair to describe these as cuts because the Tories have pledged to reinvest all but £12bn of this £35bn of efficiencies in public services.

Of the £12bn net saving, £4bn has been earmarked for tax cuts, and £8bn to reduce government borrowing.

Cause for confusion

When Labour talks of £35bn it rarely puts a time period on it. That was certainly the case with this poster and the lack of certainty over which £35bn is being referred to just adds to the confusion.

The Conservatives have also used the two figures close together, in a potentially confusing manner.

On 18 March, in a debate clearly framed around the difference in spending projections for 2011-12, Conservative co-chairman Dr Liam Fox said: "What we have said is that we have identified £35bn in terms of waste, that we would invest £23bn in front line services, and that we would use the rest to reduce the tax burden on the hard-working people of this country."

His comments, correct in themselves, switched to the James Review figures from 2007-08, without his giving any indication that he was talking about an entirely different set of numbers.

Sources
Budget 2005 (PDF), HM Treasury, p 257
Better Public Services, Better Value (PDF) Conservative Spending Plans, 2005-8
Oliver Letwin, PA news, 15 February 2004
BBC Radio 4, The World at One,18 March 2005


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