How the Liberal Democrats 'signed off' Conservative spending cuts for the next Parliament

Something doesn’t make sense about the Liberal Democrats' objection to the Tories' planned spending cuts in the next Parliament

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The Independent Online

Danny Alexander, the Chief Secretary to the Treasury (and the person chosen over Vince Cable as the party’s economics spokesman for the general election campaign) this morning has this to say about the Tories' plans:

"There is no need to carrying on cutting spending after the books are balanced. It is public services and the people who use them whose future opportunities would be limited by the Tories ideological drive for an ever smaller state."

The trouble is that these "ideological" plans were outlined by a Coalition government of which the Liberal Democrats are a member.

And Alexander bears a particular responsibility for these plans since he is the Lib Dem man inside the Treasury.

First, let's recap the contentious projections.

The Coalition told the Office for Budget Responsibility (OBR) to pencil in a 2.3 per cent of GDP cyclically-adjusted current budget surplus for 2019-20 and a 1 per cent of GDP absolute budget surplus (£23 billion in cash terms) which they duly did:

The OBR then, as it must, calculated what this overall target implies for the size of the available funds for public service spending.

The OBR knows the cash envelope for total current state spending thanks to the 2019-20 surplus target. And the Coalition has committed to various (relatively concrete) welfare expenses over the next Parliament (AME or "Annual Management Expenditure"). What’s left is day-to-day department spending (RDEL or "Resource Departmental Expenditure Limits"). This is produced by subtracting projected AME from the total current state spending figure. And it’s this £279.7 billion RDEL figure for 2018-19 which would (probably) be the lowest as a share of GDP since the 1930s:

But what’s curious is that the Coalition's surplus targets go well beyond what the Liberal Democrats as a party have committed to. They have said that their objective is to run a surplus on the current (day-to-day spending) budget by 2017-18 adjusted for the economic cycle. In party leader Nick Clegg’s own words hitting this will mean they have "finished dealing with the deficit".

But this is projected to be achieved in 2017-18:

So there is no need, in the Liberal Democrats’ eyes, to pile up those surpluses in 2018-19 and 2019-20. That cash could be spent on public services.

But this brings us to the oddity.

Danny Alexander and his leader Nick Clegg explicitly signed off on the Treasury’s overall targets before the Autumn Statement.

How do we know this? Because the OBR has told us.

In the run-up to the Autumn Statement a clearly anxious Vince Cable wrote a letter to the forecaster asking it to make it clearer in its documents that the implied cuts for the next Parliament were not underpinned by a Whitehall Spending Review, unlike the cuts up to the end of 2015-16.

And the OBR wrote back saying that it believed that distinction was clear enough already.

But they added this:

The Quad, of course, comprises David Cameron, George Osborne, Nick Clegg and Danny Alexander.

So the question for Alexander and Clegg is: if you're unhappy with the Tories' spending projections why did you permit the Treasury to write them into the official projections?

If you object to more cuts "after the books are balanced" (by your own chosen definition) why did you not refuse to sign up for budget surpluses in 2018-19 and 2019-20?

The Autumn Statement document (Para 1.43, p22) may provide a clue. It states that the Government has made a "neutral" assumption that Total Managed Expenditure (the widest measure of government spending) will remain flat in real terms in 2018-19 and 2019-20. Did Clegg and Alexander conclude that they were signing up to an innocuous non-political assumption about the path of spending? If so they made a mistake. If government spending rises only in line with inflation, rather than growth of the overall economy, it falls as a share of GDP. And that’s what pushes departmental spending down to 1930s levels as a share of output.

To labour the point, there’s nothing "neutral" about this forecast: