No doubt, as the Coalition government intended, press coverage of the Budget has focused on the many measures to promote economic growth. The Treasury has been spooked by the lacklustre GDP figure in the final quarter of 2010 and the expected outcome of just 1.7% growth for 2010/11 – well below the projected 2.1%. Such a shortfall has implications for the growth of public sector net debt (PSND), which is now around £1 trillion.
In terms of public sector net borrowing (PSNB), the comparisons with the November 2010 forecasts are striking. From 2012/13 onwards, PSNB figures are now around £10 billion higher as the impact of debt interest payments – boosted by higher than anticipated inflation – kicks in. By 2015/16, debt interest payments are forecast to be an astonishing £66.8 billion. Such a scenario only serves to underline that the overwhelming priority should be to cut public expenditure. The inflation-related rise in the £170 billion social security budget partly explains the higher borrowing projections.
The Government should tackle this massive budget with vigour. It should adopt a ‘shrinkage’ policy, eliminating the least deserving - perhaps 5% - of claimants from their current eligibility whilst also cutting the value of many benefits by a similar figure. In doing so, the social security budget would fall by several billion pounds – not rise. A renewed assault is required on the MOD’s procurement budget, which is nearly out of control.
Given the amount of money involved, why aren’t more defence suppliers announcing major cuts both in MOD orders and in margins, as other public sector suppliers have? For those who think the cuts programme is complete, the reality is that the necessary cuts have barely started. It will take years of sustained pressure on the public sector to drive down total public spending, which will enable the private sector to deliver the necessary growth.