Balancing the books – the 2010 Budget

by Robert Whiston, June 24th 2010

Deep cuts to government spending have been promised by the new coalition administration. Every one will be worse off to one degree or another following the collapse of the banking system and its subsidisation by the tax-payer.

Britain is not alone is facing these challenges of balancing its books while avoiding any measures that might induce a stall in the economy.

For those interested in such matters it will be tempting to look back at the last 10 years, i.e. from 2001 to 2010. However, a longer term perspective of how a balance should be struck between incomes and expenditure might be more satisfactory.

This is not to imply that the period from 1992 to 1998 was far superior, on the contrary it had its faults and shortcomings, but it does allow us to compare where the explosion in spending have occurred.

What may not be at first apparent is that we have been here many times before; the last time was under the premiership of John Major – a politician unmercifully characterised by TV’s satirical Spitting Image.

The British economy last entered a recession in 1990 – 1992 and had recovered by 1996. Major is quoted as saying, “I inherited a sick economy and passed on a sound one”. That must be the hope of the new Chancellor of the Exchequer, George Osborne.

In his autobiography John Major writes that during his premiership interest rates fell from 14% to 6%; that unemployment was at 1.75 million when he took office, and was at 1.6 million and falling when he left. The government’s annual borrowing rose from £0.5 billion to nearly £46 billion at its peak before falling to £1 billion. [1] Speaking in 2008 shortly after the sub-prime market catastrophe and only a few months after Northern Rock was effectively nationalised (in Feb 2008), he predicted a deep recession was unavoidable.

John Major quoted from Derek Scott, who was Prime Minister Tony Blair’s adviser who had said, “Gordon Brown inherited the best economy of any Chancellor in living memory.” In John Major’s opinion the opposition party ‘have squandered it’; “They have spent and spent and spent.” George Osborne, inheriting a similar but worse situation must be hoping he can equal if not better Major’s stewardship.

The technique used gingerly in the 1990 to 1992 period was one of wage suppression to squeeze inflation out of the economy. The dire circumstances of 2010 means that, politically, this instrument can be taken to a higher pain threshold.

Success, however, is not always rewarded. “We looked very heartless” said Major, “[and] we paid a very heavy political price for it [meaning that they lost the 1997 election], but we did kill inflation for a very long time and the British economy subsequently benefited.[2]

The figures cited below are taken from “Annual Abstract of Statistics” and can be found under the sub-heading “General government expenditure.” Each reader will focus and draw on their own specific area of interest.

High on the present government’s agenda are Housing Benefit and Iincapacity benefit. In the case of the former we can see from the table below that it increased 50% between 1992 and 1998.

The allure to government of a simplified regime is that the Administration Costs put here at over £3 billion per annum (£3,678 million in 1998), and presumably far in excess of that by 2010, can be radically trimmed back.

Britain’s Armed Forces have been over-committed worldwide since 2007 and those commitments may be expected to continue or even increase in the short term. The table blow shows a static budget when the Armed Forces were not over-committed, However, this represents a year on year fall in purchasing power through the 1990s.

Hand in hand with this over-commitment will be a slight increase in was pensions and widows pensions in 2011 to 2015.

The National Health Service which includes hospitals, GPs and community health services saw a substantial increase in the 1990s. Even more money was spent by Gordon Brown when he was Chancellor and the Coalition has ‘ring-fenced’ expenditure on the NHS

 
 
Annual Abstract of Statistics
 General government expenditure
 


 
 

Table 3.5 General government expenditure by function, 1992-93 to 1997-98
 

 £ million
  1992-93 1993-94 1994-95 1995-96 1996-97 1997-98
Social Security            
Pension benefits (contributory) 27,413 28,937 29,503 30,750 32,824 34,363
Widows’ benefits 1,044 1,076 1,057 1,051 1,016 1,045
Unemployment (cyclical) 1,801 1,690 1,331 1,131 615 16
Unemployment, incapacity and other benefits (non- cyclical) 7,555 8,414 8,456 8,292 8,094 7,789
Industrial injury benefits 688 707 728 753 765 776
Family benefits (contributory) 484 467 525 572 393 540
Pension benefits (non-contributory) 53 54 51 54 49 48
War pensions 1,158 1,286 1,147 1,258 1,351 1,281
Disability benefits 4,874 6,127 6,888 8,019 9,214 10,158
Income support (cyclical) 11,499 12,648 12,923 13,327 13,336 12,762
Income support (non-cyclical) 3,860 4,086 4,114 4,032 3,959 3,912
Social Fund 212 234 217 268 239 201
Family benefits (non-contributory) 7,148 7,826 8,138 8,691 9,361 9,469
Housing benefits 8,484 9,855 10,776 11,633 12,135 12,519
Administration and miscellaneous services 3,182 3,395 3,263 3,335 3,463 3,678
             
Total Social Security 79,455 86,802 89,116 93,165 96,813 98,558

 
Health and personal social services
Health
National Health Service hospitals, community health, family health (cash limited) and related services
26,574 27,653 29,235 30,927 32,649 34,493
Family health (non-cash limited) 6,698 6,750 6,792 6,915 6,864 6,957
Central health, and other services 1,085 1,203 1,441 1,340 1,134 1,143

 
Total Health(6) 34,357 35,607 37,468 39,182 40,647 42,593
Education            
Under fives 1,213 1,291 1,372 1,428 1,489 2,113
Schools(3) 18,355 18,615 19,496 20,037 20,754 20,941
Further Education(4) 3,727 4,541 4,660 4,855 4,885 4,872
Higher Education 3,815 3,784 4,497 4,856 4,772 4,727
Student support (inc mandatory awards & access fund) 3,066 3,399 3,185 2,982 2,937 2,156
Miscellaneous educational services, research and administration 1,529 1,688 1,749 1,755 1,797 1,867
             
             
                     
Housing            
Central government subsidies to local authority housing 1,388 1,198 1,219 1,161 1,040 861
Other central government subsidies 137 147 202 200 219 215
Other housing and central government administration 2,063 1,774 1,982 2,172 2,074 2,176
Support for Social Housing 336 337 340 299 279 315
Housing Corporations 2,285 1,762 1,463 1,131 517 -48
Capital Receipts Initiative           4

 
Total Housing 6,209 5,218 5,206 4,962 4,130 3,523
             
Defence            
Defence budget 22,910 22,757 22,562 21,517 22,345 21,835
Receipts from sale of married quarters         -962 -70
Table 3.5 General government expenditure by function, 1992-93 to 1997-98
http://www.archive.official-documents.co.uk/document/cm39/3901/tbl-3-5.htm £ million

 
  1992-93   1993-94   1994-95   1995-96   1996-97   1997-98 
Housing Corporations  11aa 2,285 1,762 1,463 1,131 517  
 
Footnotes:
 [1] “Real rate of inflation could be 10 per cent, says John Major”, 14th July 2008. http://www.independent.co.uk/news/uk/politics/real-rate-of-inflation-could-be-10-per-cent-says-john-major-866874.html

[2]  BBC Andrew Marr programme http://news.bbc.co.uk/1/hi/programmes/andrew_marr_show/7782238.stm

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One response to “Balancing the books – the 2010 Budget

  1. Nice blog !

    Our magazine http://www.thefamilymag.com covers soemthing similar in Canada. They look for new stories and ideas all the time. Anything and everything that is non mainstream and everything that gets people thinking.

    Cheers
    Ryan

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