Are nine out of ten spending cuts still to come?

Last updated: 29 Jun 2012

"Few people realise that 88% of benefit cuts are still to come" [25 June]

"only 6% of public service cuts have happened yet. Another 94% are still to come, with cascades more public servants sacked. In benefits, 88% of cuts are still to come." [2 February]

Polly Toynbee, The Guardian, 2012

"The worst is still to come: Only 6% of brutal cuts have kicked in so far"

Daily Mirror, 21 March 2012

Earlier this week in a now infamous Newsnight interview Treasury Minister Chloe Smith confirmed that cutting the budget deficit remained the Coalition's "number one prioirty".

Indeed, cuts to public spending have been the central discussion point for both supporters and opponents of the Coalition Government. But some who claim to be 'feeling the pinch' may be shocked to read that, apparently, only a fraction of spending cuts have so far taken place.

So where do these oft-repeated figures come from?

Analysis

Back in February this year, the Institute for Fiscal Studies (IFS) published their Green Budget for 2012 in which they present facts and analyses of the government's tax and spending policies over the coming five years.

The claim, in full, is stated in their introduction under the ominous heading "Fiscal repair, painful but necessary":

"By the end of 2011—12, 73% of the planned tax increases will have been implemented. The spending cuts, however, are largely still to come — only 12% of the planned total cuts to public service spending, and just 6% of the cuts in current public service spending, will have been implemented by the end of this financial year."

They derive their figures from projected spending cuts and tax increases outlined in UK Budgets since March 2008. Using these, they estimate that the combined effect of policies since 2008 will reduce Public Sector Net Borrowing (the budget deficit) by 8.1 per cent of GDP or £123 billion in 2011 prices.

The timetable

In their latest estimate following the 2012 Budget, projecting this target of £123 billion (starting at 2010-11 and ending at 2016-17) in reduced net borrowing, the IFS are able to calculate when such a reduction will be implemented.

The graph below shows how most of these savings will be made using spending cuts rather than tax increases. The IFS suggest a justification for this could be due to the fact that the vast majority of the deficit that has emerged since 2008 has happened because of increased spending rather than reduced tax take. So the 'consolidation' is aiming to return tax and spending to their pre-crisis levels.

The bars in the graph don't represent the 'consolidation' each year but the cumulative improvement in the public finances from 2010 to 2017. The 'target' is a consolidation of 8.06 per cent of GDP. So far (at the end of 2011-12) the saving is put at 1.68 per cent of GDP. The latest data from the Treasury backs this up.

This means that we are around 20 per cent of the way towards the target reduction in net borrowing, with 80 per cent of the reduction still to come.

However this is due to both spending cuts and tax increases. The IFS data shows that we have already experienced 63 per cent of the planned tax increases (the bulk coming in 2011-12).

Filtering out these tax rises, the target cut in spending on investment, benefits, debt interest and others is 6.68 per cent of GDP by 2016-17. So far, we have experienced cuts amounting to 0.8 per cent of GDP. Hence, we are 12 per cent of the way there.

As it happens, cuts to benefit expenditure are being made at the same rate, which was Polly Toynbee's point in the two Guardian articles:

Meanwhile the Mirror's figure can be explained by the several different areas in which the IFS measure cuts progress. In this case, the six per cent progress they cite refers to cuts in general public spending beyond welfare, which were stated by the IFS in February:

"By the end of 2011—12, the plans imply that we will have experienced 73% of the tax rises, 34% of the investment cuts, 12% of the benefit cuts, but just 6% of the cuts to non-investment spending on public services."

Conclusion

The claims in the articles all derive from the research conducted by the Institute for Fiscal Studies. Polly Toynbee's figures concern the progress of cuts to benefits, which comprise a large part of the consolidation alone. Meanwhile the Mirror refer to public spending more generally, where progress is half that of benefits and much more is projected to come.

As far as we can see, all of the figures have been quoted correctly, and certainly make for interesting reading.


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