The government's big 'austerity' lie

The government wants us to think it's cutting spending. But far from being slashed, public expenditure in the UK has hardly gone down at all.

We used to always put the words 'the cuts' in quote marks to make the point that they didn't really exist. We've given up, on the basis that it isn't really worth the bother. So many people (including almost all politicians) are so convinced that the UK is in the grips of the greatest austerity of all time that there is little point in offering subtle hints about the fact that the real story is not quite the one they have swallowed.

Welcome, then, the latest report from the angry analysts at Tullett Prebon. It is called Blowing the Whistle on UK Austerity' (see how they use the quote marks there?) and that is exactly what it does.

The truth is that far from being slashed, public expenditures in the UK "have hardly been reduced at all". The official numbes show that real spending in 2011-12 was just 1.1% (£8bn) less than that in 2009-10. It was also £23bn or 3.4% higher than spending in Labour's last year of office (2008-9). Savage cuts? Hardly. Indeed, as Dr Tim Morgan notes "portraying his miniscule amount of spending restraint as anything other than marginal is mendacious in the extreme".

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Worse, while the deficit (the amount we add to the national debt every year) has been reduced in the last year (from £161bn to £123bn) it is still higher than it was in 2008-9 (£100bn).

And as for the £38bn bit of the deficit that has been cut, it hasn't been cut via spending cuts. No, it has been cut via tax rises. On constant values (2010-11) taxes have risen by £30bn since 2009-10. That is 75% of the entire increase in GDP we have seen over the period (£40bn).

You might think that we live under a responsible government working day and night to cut spending, and rein in the explosion in the debt burden. What has actually happened is that the government has "mopped up most of the skimpy recovery in GDP for its own use", has made very little in the way of spending cuts and along the way has added over £200bn to the national debt.

All this, no doubt, makes sense from Number 10 and 11. After all, if we want to keep the bond market from pushing up interest rates (which would be a disaster), we need to keep up the cuts spin.

And of course, actually doing any real cutting is politically all but impossible. But can the government keep the big lie going? Morgan thinks not. He reckons that the bond markets, "sooner rather than later" will call the UK authorities to account. I am sure he is right that our day of reckoning will come. But I also suspect it will take longer than he thinks.

The markets have a awful lot of big lies to focus on at the moment (the European banking system is solvent; you can print your way to growth; fiat currencies can survive in the long term; Greece can leave the euro without contagion; stock markets make real returns of 6% pa over the long term; there is no housing bubble in China - that kind of thing). That makes me think it will be a while before they get around to exposing ours.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.