25.11.10

National Spend Trend

The Comprehensive Spending review outlines the government spending over the next five years, from 2010/11 to 2014/15. Total spending this year is £697 billion, including £43 billion (6.2%) in debt interest payments.

The emphasis around this has been focused on cuts in order to reduce our debt. However, counter-intuitive as it might be, the key Treasury figures in the CSR show that total spending increases over this period, as does the debt interest.

1. Total Spending… increases…6.2%

Total spend in 2014/15 will be £740bn, an increase of £43 billion or 6.2%. (Given these are such big and critical numbers, it is wonderfully coincidental that this the same as the current level of debt interest payments).

2. Debt Spending…. increases even faster…46%

That total spending includes debt interest, which increases from £43bn to £63bn, an increase of 46% over the five years. So debt interest is increasing faster (46%) than the overall spend (6.2%).

3. Total spending excluding debt… increases more slowly…3.6%

When debt is excluding from total spending, the percentage increase in spending nearly halves to 3.6% (from 6.2%). That’s an increase from £654bn to £677bn over the CSR period.

4. Debt as a proportion of spend…increases…to 8.5%

Over the CSR period, that 45% increase in the debt spending means that debt as a proportion of total spend increases from 6.2% to 8.5% by 2014/15 .

5. Overall…increases, especially debt.

So, spending is increasing in absolute terms, but debt spending is increasing faster, so debt is a bigger proportion of spending at the end of the CSR than at the beginning.

6. And inflation….means reductions.

There will be an inflationary factor to take into account but these overall figures provide a relative picture. But this analysis is based on the figures as presented in the CSR.

The latest inflation figures from the Bank of England show inflation at 3.1%, above the 2% target. Assuming 3% year on year inflation over the life of the CSR means that the £740bn in 2014/15 is actually worth around £657bn in real terms. So compared to the £697bn in 10/11, a reduction of £40bn or 5.7%. Substituting 2% inflation makes this £11bn or £1.6% reduction.

Sources: Bank of England: Inflation Report November 2010. 10.11.2010. HM Treasury: Comprehensive Spending Review 2010. 20.10.2010