Monday, 18 January 2010

The Budget Deficit

So, it's fairly well established that the Government has some financial problems these days, in the form of a £178billion deficit. That's how much its overspending by each year. This is a large problem - large enough for Labour to feel it necessary to pass a law to halve the deficit over the next 4 years.

Herein lies the first problem.

The Government is overspending by £178billion every year. And they want to halve that, so that they're only overspending by £89billion a year. Well, that's good, isn't it?


They'll still be overspending by £89billion a year!

Now, I have a reasonable grasp of economics, and I do understand that public overspending is not the same as private overspending. You have a little more flexibility when you're in control of your own currency. But still - £178billion?!

So both Labour and the Conservatives are waking up to the fact that spending cuts are going to have to happen, and some of them are going to hurt. Not all of this gaping black hole can be plugged simply by painless streamlining of back office functions.

So what should be cut?

Well, first you have to look at where the money is being spent.

This little graph is lifted from the Pre-Budget Report 2009.

The biggest lump of expenditure that strikes me is the eye-watering £190billion being spent on social protection, i.e. benefits. Ouch.

Now, obviously, social protection also includes old age pensions, winter fuel allowances, etc. - some of it is certainly well-justified expenditure. But the thing the PBR2009 doesn't do is go into more detail.

Well, it took a little poking around on the HM Treasury website, but I found it. Breakdown of social protection spending. This doesn't exactly correlate with PBR2009 - it's a forecast from 6 months before. But it's close enough to give you a good idea.

Now, the one that leaps out to me is 'Sickness and Disability', which costs £38.3billion per year. Closely followed by 'Family and Children' at £28.1billion, 'Housing' at £20billion and 'Social Exclusion' at £20.8billion.

These, to me, seem extortionately high. Especially when compared to the graph of total expenditure above. The benefits I've just listed cost nearly three times the entire defence budget and nearly the cost of the entire NHS. That seems like a hell of a lot of money being spent on benefits.

Now, I believe in the welfare state. I believe that the State should be there to provide at the point of need, to help people get back on their feet. I do not believe that the State should be in the business of handing out meal tickets.

Surely, this needs looking at?

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