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The great lie of our times: The Left wail about 'ruthless' cuts. But the reason Britain's credit rating was downgraded is that government spending hasn't fallen by a penny

By Alex Brummer

PUBLISHED: 23:23, 25 February 2013 | UPDATED: 00:37, 26 February 2013

Ever since George Osborne became Chancellor nearly three years ago, it has been the received wisdom, thanks to shroud-waving unions and the Left-wing establishment, that he and his Treasury team have imposed �ruthless� cuts on the state sector.

The constant cry from Labour, the public sector unions, local authorities and many commentators is that the cold-hearted Coalition is engaged in a �slash and burn� policy that will end in the wholesale destruction of the welfare state.

It is a cynically dishonest analysis which aims to make us believe that the reason Britain is suffering a painful period of austerity is because of the draconian effect of �cuts� to welfare payments, the NHS and all manner of public services, from libraries to the arts.
Ever since Osborne became Chancellor, it has been the received wisdom, thanks to shroud-waving unions and the Left-wing establishment, that he and his Treasury team have imposed 'ruthless' cuts on the state sector

Ever since Osborne became Chancellor, it has been the received wisdom, thanks to shroud-waving unions and the Left-wing establishment, that he and his Treasury team have imposed 'ruthless' cuts on the state sector

The truth is that this is utter nonsense. In fact, Britain�s monstrously swollen state still devours almost half the nation�s output.

Total state spending and borrowing has not been cut in absolute terms at all. Indeed, the burden of debt, the accumulated amount of borrowing made by governments down the years, is rising relentlessly.

It was an understanding of this stark truth that led to Britain losing its AAA credit rating last week. The world�s market monitors finally lost patience with our inability to control our borrowing and lack of economic growth.

As the credit analysts at Moody�s point out, Britain�s burden of debt will keep rising until 2016, when it is expected to reach a staggering peak of 96 per cent of GDP of total output.

For the Government is guilty of a sleight of hand by trying to make the statistics look more healthy by boosting the Exchequer�s ledger (with the help of an unexpected windfall worth billions from the Bank of England�s policy of printing extra money). This amounts to a piece of accounting trickery that makes the volume of debt look smaller than it really is.

The fundamental truth remains that most areas of state spending � particularly welfare payments and social security � are still growing uncontrollably.

This may not be apparent when you hear the deafening chorus clamouring for the Government to change course and to protect welfare payments at a time of rising unemployment. But the fact is, the total cost of unemployment payments should be shrinking.
Britain's monstrously swollen state still devours almost half the nation's output

Britain's monstrously swollen state still devours almost half the nation's output

It is true that traditional economic theory teaches us that welfare payments automatically rise during a recession because of the increase in the numbers of people laid off or who can�t find work.

But in Britain�s case now, in stark contrast to countries such as Spain and Italy, the rate of unemployment has actually been falling for almost a year. A remarkable 580,000 new jobs have been created, mostly in the private sector.

Yet the problem for Britain � a deeply worrying one � is that welfare bills and borrowing levels are still rising.

A recent analysis by the fiercely independent Institute for Fiscal Studies (IFS) explains why. To be fair, the Government has tried to cut public spending. Indeed, every new economic initiative that the Treasury has come up with since problems in the public finances first became apparent in March 2008 (including numerous rises in taxation) was devised to reduce state borrowing.

For his part, Mr Osborne has made it crystal clear in successive Budget statements that while 15 per cent of the extra income would come from higher taxes, the remaining (much greater) 85 per cent would be found from public spending cuts.

But this has not happened. The unpalatable fact is that only 67 per cent of the promised cuts in public investment have been delivered.

Ironically, these have included cancelling major infrastructure projects such as new roads and railways that, if they had gone ahead, would have contributed to growth and provided the kind of boost to the economy called for by disciples of the great British economist John Maynard Keynes (who believe that during downturns, the state needs to spend money to revive the economy).

But these projects were regarded by ministers and civil servants as cuts that could be delivered relatively painlessly, without anyone being hurt.

The reality, of course, is that Britain desperately needs such new infrastructure investment if it is to continue to attract foreign investment and trade and compete with the rest of the world.

Contrast these easy targets with the shameful inertia demonstrated with regard to tackling the great public sector leviathan.

Partly to blame are ministers desperate to protect their fiefdoms, be they the environment, schools or welfare spending.

The IFS notes that despite all Labour�s talk of aggressive benefit cuts, the Government � even though it is now halfway through its five-year term � has barely begun to tackle the crippling �208 billion annual welfare bill. And only 32 per cent of the promised cuts in the welfare budget have been delivered.
Cancelled: Major infrastructure projects such as new roads and railways would have contributed to growth and provided the kind of boost to the economy called for by disciples of British economist John Maynard Keynes

Cancelled: Major infrastructure projects such as new roads and railways would have contributed to growth and provided the kind of boost to the economy called for by disciples of British economist John Maynard Keynes

Meanwhile, only 21 per cent of the promised cuts in other areas of government spending have been achieved.

The IFS issued a damning verdict last week after it was revealed that borrowing looks set to overshoot the Treasury�s forecast by at least 7 per cent in the year ending April 5, 2013.

It said: �Spending continues to run higher than forecast, due to strong growth in spending on both welfare benefits and on the delivery and administration of public services.� In other words, while ministers have promised smaller government, they have failed to deliver and the public sector continues to grow.

This is confirmed in detailed tables contained in the report last December by the Office for Budget Responsibility � the official monitor of the public finances set up by Mr Osborne to bring independence to the forecasting process and to remove it from politicians.

It showed that social security payments (such as housing benefits and pensions) will surge from �181.8 billion in the current financial year to �199.3 billion in 2016-17.
A worsening British economy: The final Budget under Prime Minister Gordon Brown (2010-11) saw public spending projected to be �644 billion a year

A worsening British economy: The final Budget under Prime Minister Gordon Brown (2010-11) saw public spending projected to be �644 billion a year

Similarly, the cost of tax credits � subsidies for people in low-paid jobs (which totalled �170 billion under the last Labour government) � is still climbing, and will rise from �31.7 billion this year to �33.3 billion in 2016-17.

Despite minor tinkering (such as imposing an upper limit on housing allowances that matches average incomes), the Chancellor has done little to tame a benefits system that is among the most generous in the Western world.

The Government�s only achievement has been to slow the rate of increase in spending, not put it into reverse.

The final Budget under Prime Minister Gordon Brown (2010-11) saw public spending projected to be �644 billion a year. Yet with the British economy in an even worse state, the most recent projections from the Office for Budget Responsibility show that by 2016-17, public spending will be more than �100 billion higher � the equivalent of �4,000 per household � at �756.3 billion a year.

Even after all the hysterical talk of excessive cuts, the payment of welfare benefits and the cost of the NHS remain protected. They are by far the two biggest areas of state spending.

No one suggests these essential elements of Britain�s cradle-to-grave social provision, which have transformed the lives of millions since World War II, should be subject to swingeing cuts.

Nevertheless, as a country we must decide how much we can continue to afford paying for welfare benefits and social protection at a time when the economy is struggling to expand and create wealth.

Tragically, this Government seems to have missed a once-in-a-generation opportunity to tackle our fatal addiction to a welfare budget that has ballooned out of control, that imposes an increasingly unfair tax burden on workers and threatens Britain�s very survival as a competitive nation.

How ironic, therefore, that the Conservative-led Coalition is being pilloried for making so-called �ruthless� cuts which, in truth, it hasn�t had the guts to introduce at all.

This is the culmination of ruinous free market policies by both Tory and Labour govt's, coupled with the slavish adherence to EU dictats and procurement rules. The free market has seen much of our companies and nfrastructure sold off to overseas interests milking the dividends and sheltering the profits and moving production abroad hence why corporation tax receipts are so drastly down. In addiiton to this the EU procurement rules which are ignored in Europe are slavishly followed in the UK. Would Ford have shut the UK transit factory in Eastliegh (take note voters) if they had a steady stream of orders from UK govt agencies from the police, ambulances services etc. Would Bombardier be contemplating closing Derby if it had won the Thameslink train deal. Go to Europe and you see each govt buys from locally sourced manufacturers and suppliers. In the UK we throw our people out of work rruin our industrial base and hence increase our welfare bill.