MYTH NUMBER 1 – States spending is “out-of-control”

This page sh0ws how an alliance of interests all tell us this myth – that States spending is “out-of-control”.  This is perhaps the most important topic in Jersey politics. How much should the government spend? Have we got the balance right? What sort of public services do we want? Are we content with the failures which can and do happen if spending is held down to the extent that it has been?

There has been no public debate, no public consultation, on this most important matter at all.  The Treasury Minister told me so in an answer to a Written Question. For details see here.

Senator Ozouf, the Comptroller and Auditor General (CAG), the Corporate Services Panel led by Sarah Ferguson, the Public Accounts Committee under Ben Shenton, the “Small Society” all paint a picture of rapidly rising States expenditure: 6% a year for the last 5 years, or 75% or even 100% over the last 10 years. The trouble is, all the figures are incorrect.

You might wonder why there is a chorus all “singing from the same song-sheet” when what they are all singing is demonstrably wrong? Is it group-think? Is it deception which suits a certain agenda?  I ask this question here. Whatever it is it makes it virtually impossible for all of us to have a sensible discussion on what we should do..

So step up the first member of the chorus: the CAG  (Comptroller and Auditor General). On page 7 of his report of February 2010, entitled “States’ Expenditure Forecasts: Further evidence submitted by the Comptroller Auditor General to the Finance Sub-Panel of the Corporate Services Scrutiny Panel” we read:

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paragraph 8:

“Although the rate of growth in spending (footnote  2)  has varied over the past ten years, in recent years, it has exceeded 6% per annum (my emphasis)

Then the CAG has this chart:

Year of account          Actual  (millions)                 Annual increase %
2001                                  417
2002                                  410                                            -1.68
2003                                  443                                             8.05
2004                                  460                                             3.84
2005                                  484                                              5.22
2006                                  504                                             4.13
2007                                  522                                             3.57
2008                                  562 **                                        7.66
2009                                  598 *                                          6.41

* Estimated

** Excludes £103 million Energy from Waste plant

footnote  2    In this paper, figures for spending reflect ‘Total Spending’ by the States which includes both Net Revenue Expenditure (i.e. current expenditure) and the Capital Expenditure Allocation (i.e. capital expenditure).

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NOTE: The above has been transcribed from the original, due to technical problems!. If you want to check the original click here (and go to page 7)

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The second member of the chorus is the Corporate Services Panel. In August 2010 they lodged an amendment to the Annual Business Plan 2011 (P99/2010,  Amd 9). The Amendment sought to cut an additional £30 million from States net revenue expenditure in the following three years. This is what they said:

“The report of the Comptroller and Auditor General ….  includes the table below (the same table as I copied above) outlining the growth in actual spend since 2001.The table illustrates that the rise in spending since 2001 has been significant. It must be brought under control.”

So the Panel use the CAG’s figures as a key plank in their argument for deeper cuts. But “the growth in actual spend” is not what the chart shows. The Panel, and the CAG whom they are quoting, have forgotten inflation. The growth in actual spend is much much less. How could the CAG, and the Panel, have left inflation out of their calculations??

Here is the chart from the FPP (Fiscal Policy Panel  – or “three wise economists”)  Annual Report 2011 showing inflation over the last decade:

Chart showing inflation over the last 10 years

 

 

 

 

 

 

 

 

The red line is RPI(X) – the key indicator of inflation as it excludes house prices. Note that it rarely goes below 3% per year, and for a whole year it was over 5%. So what does that do to a supposed increase in spending of 6%?

So that is the CAG and the Corporate Services Panel. Third member of our chorus is Senator Ozouf, our Treasury Minister. Surely he knows about inflation? He certainly will not be found questioning the FPP’s findings. He rightly respects them as one of the more reliable sources of information which the States have. As professional economists, they have reputations to protect.

So here he is:  Source: Hansard, March 9th 2010

Oral Questions without notice, Minister for Treasury and Resources:

“No, I am afraid the Deputy is wrong and I would ask him to review the documents already in the public domain in relation to the Business Plan and Budget where there is a structural deficit which is expected on the latest information that we have from income which is going to be recurring.  That is a function of the fact that States spending has risen above that of which the income … States spending has risen by 30 per cent over the last 5 years, 6.7 per cent in 2009, a further 6 per cent in 2010 . . . .” (my emphasis)

Later in the same questions session, we see the same reliance being put on these figures, wrong as they are, to justify a policy of cuts:

3.11   Deputy G.P. Southern:

Does the Minister not accept that massive cuts, such as 10 per cent budget cuts, cannot be made to services which are staff heavy like Health and Social Services without cuts in services and cuts in jobs?

Senator P.F.C. Ozouf:

It is inevitable that having increased public expenditure by 30 per cent, 6 per cent in 2009, more than 6 per cent in 2010, increasing the public sector spend and increasing the number of people in work and then reversing some of those increases by a 10 per cent cut will mean that there is going to be some service reductions and there are going to be some reorganisations and that will have an impact on manpower.  I am not going to duck that issue, I need to find a solution for balancing the books and I hope the Deputy will support me in that requirement to avoid tax increases.” (my emphasis)

So he does not know about inflation either. The issue is set up as – “look at these huge increases” – and then the solution is – we must cut. But the huge increases are not huge increases at all. Roughly half of the increase is due to inflation. For the rest see here.

Outside the States Chamber there are other chorus members singing away. We have the “Small Society,” group with their infamous full page advert in the JEP (sorry no reference) claiming that States spending had doubled in the last 10 years – a 100% increase. When they wrote to States members a little later, they had already reduced the figure to “almost 75%”  But one of their members, writing to all States members in a private capacity, was still claiming in September 2010 that “The effect has been that States spending has doubled in ten years, far outstripping inflation . . . “

The Chamber of Commerce repeatedly play the record in their monthly newsletter, that States spending has risen over the years too fast and must be curbed. In this case they use figures to make their case:

“The States look like it is going to struggle to even deliver the £50 million in cuts. Finally, being optimistic, and assuming the £50 million target is achieved; States net revenue expenditure will still actually be going up, as the table below shows: 

Year of expenditure        2011 Business plan £M              Year on Year Growth %                        Chamber Target  for States Spending £M

2010                                            609                                                                                                                                           609

2011                                             616                                                                1.1                                                                     597

2012                                             635                                                               3.1                                                                     580

2013                                             637                                                               0.3                                                                    580

 Chamber has no doubt that Senator Ozouf is doing his best to get a grip on spending but controlling States members and civil servants when it comes to money is clearly like herding cats.”

 Source: Chamber online July 2010, page on “Herding Cats!”

But the Chamber too  has forgotten inflation.  It seems they cannot tell the difference between an increase in expenditure which is lower than inflation, and which is therefore a cut, and an increase in expenditure which is higher than inflation, and which is therefore an increase in expenditure. The figures in the table represent cuts after taking into account the effect of inflation.

Senator Shenton is chairman of the PAC (Public Accounts Committee) so he should know the difference between something costing 3% more than it did last year because of inflation and a budget increase of 3%  which is new spending. Well no,actually. Here is an extract from his Foreword to the PAC’s  States Spending Review (PAC2/2010):

 “In fact, a previous Fundamental Spending Review, undertaken in 2004 to a fanfare of  ‘we will cut spending’ was in some respects an abject failure. Expenditure increased significantly in the following years, despite the rhetoric.” Only it didn’t. Expenditure in real terms (i.e. taking out the effects of inflation) was increasing by 1% a year at that time. Here is the FPP chart showing this, and then their commentary on the chart:

FPP chart showing States expenditure in real terms for the last 10 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
About this chart they write:
“Figure 2.3 shows States’ income and expenditure between 1998 and 2010. Between 2001 and 2007 expenditure increased by less than 1% a year in real terms, while income exhibited cyclical fluctuations. Since 2007 expenditure has grown more rapidly, even excluding Energy from Waste, rising at around 3.3% a year in real terms between 2007 and 2010.” (my emphasis).
 
 
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Responses

  1. It’s rather difficult for many to understand what inflation vs real value increases are and so it’s very easy for those in the public eye, like a magic trick, to throw figures around that include it in order to mislead. I do hope there are not “black hats” out there who know exactly what they are doing – I prefer to believe that they are fooling themselves with wishful thinking by not analysing what their own words and ideas mean well enough.

    In either case, people are are getting fooled.

    • Yes, there is a question here. Are the people doing the misleading of the public, in this case Senator Ozouf, doing it with self-deception? That is, they really do not know that what they are saying does not stack up?

      If so, if, for example, the Treasury Minister is talking about rising public spending without factoring in inflation BY MISTAKE, then that surely is incompetence. Or more politely it is a big mistake to make.

      If he is talking about rising public spending without factoring in inflation, DELIBERATELY, then one can rightly say that he is telling lies.

      So you pays your money and you takes your choice.


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