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Analysis: The prime minister’s comments leave a lot of room for sleight of hand
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Liz Truss told parliament today that she would “absolutely” be sticking to her leadership campaign pledge not to cut spending on public services.
But there’s good reason to think her claim is not what it seems.
The promise has raised eyebrows because the prime minister is due to borrow £45 billion to cut taxes, mostly for wealthier households.
And yet her government is expected to announce a debt reduction plan to satisfy financial markets, which went haywire over her unfunded tax cuts.
So how is the prime minister able to make such a promise? Where is the sleight of hand?
One clue came immediately after the Commons session. Questioned after PMQs by reporters in Westminster Ms Truss’s spokesperson warned while she would of course stick to the promise, there would be “difficult decisions” on spending.
This raised alarm bells because the tone was rather different from the prime minister’s own in the chamber 30 minutes earlier
Pushed further, the spokesperson crucially would not say whether spending pledges made in the government’s existing spending plan would be upgraded in line with inflation.
This is crucial, because inflation is currently running at around 10 per cent.
So a 10 per cent increase is needed just to stand still, and not increasing allocations would represent a 10 per cent cut to departments.
So when Truss says she won’t cut public spending, she means in what economists call “cash terms”, rather than “real terms”.
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You can probably guess from the names that the latter is what actually matters – especially when inflation is so high and the gap between the two is so significant.
In a scenario where cash spending on public services is not increased by 10 per cent, they end up with higher costs due to rising prices, but their funding does not increase to match. So the cash does not go as far.
There are also other reasons to be sceptical. Due to demographic factors like an ageing population and simple population growth, some particularly expensive services like the NHS and social care require a real terms increase just to provide the same level of care to a larger number of people using the service.
So even if a real-terms increase is pledged in some areas, it may lead to a cut in funding per patient.
All this explains why the prime minister is happy to say there won’t be any cuts to public spending. This does not mean there won’t be austerity.
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