Debate rages on after Spending Review

Chancellor of the Exchequer, George Osborne, has unveiled the spending review

Lies, damned lies, and statistics. The phrase popularised by Mark Twain has never rung so true.

George Osborne has unveiled his spending review. Departmental budgets are being slashed in the biggest cost-cutting exercise since the 1970s.

Labour says this is what some Tory ministers were born to do - an ideological drive to cut the state and restore power to the privileged.

The government counters that their cuts are actually no deeper than Labour had planned had it won the election.

The Chancellor tells us that he's cutting now because he has to ensure that the UK's debt burden is reduced.

He doesn't want our children to be saddled with the "interest on the interest on the interest of the debts we were not ourselves prepared to pay".

And yet despite the massive cuts in spending, national debt continues to rise for the next five years from £952 billion this year to an estimated £1.25 trillion in 2015. The interest payments alone in 2015 will still be £63 billion.

The comparison with a personal credit card doesn't work because in most personal cases when there's too much on the credit card the individual simply stops using it.

Discretionary spending - such as meals out and new clothes - gets cut to zero until a reasonable dent in the debt is made.

But with countries you can't cut spending to zero, hence you have to keep watching your debt and interest pile up in the hope that when the economy finally kicks into life you might be able to start paying off the bill rather than simply servicing the interest.

The current national debt represents a burden of around £15,000 for every UK resident. That's £60,000 worth of debt for a household of four. Scary figures.

Bank of England

The economists are as divided as the politicians on what should be done.

Some strongly back the government's approach arguing that the balance between building financial confidence in the UK economy and hurting consumer confidence to spend has been struck right.

Others argue that as the cuts are making such a small difference to the debt problem it would be better to keep spending and let a rising economy swell Treasury coffers instead.

And there's a third group who feel the cuts are not dramatic enough and that it has been a serious miscalculation to protect areas like health and education from the knife.

Minutes from this month's Bank of England committee that sets interest rates highlight how the debate is now split three ways there too.

One member wants the bank to loosen up with more quantitative easing (printing money) immediately, another wants the bank to raise interest rates to control inflation, while the majority view maintains the middle course of keeping things as they are.

So, it should be no surprise that Owen Paterson has a totally different interpretation of what it means to spend £18 billion on capital projects in Northern Ireland than Peter Robinson and Martin McGuinness.

He is arguing that the government is standing over the commitment given by Gordon Brown to provide £18 billion of capital funding by 2017/18.

But it all depends on how you do the sums and it's clear that messrs McGuinness and Robinson are working with a different formula.

Water charges

The ministers had prioritised capital spending as of primary importance. But can they find a means to plug the 40% drop in funding?

The Finance Minister favours moving money from current expenditure into capital projects - subject to Treasury approval.

Water charges, unpopular as they undoubtedly would be, would also go a long way to plugging expenditure holes.

These are difficult, difficult choices. The next few weeks could be the making or breaking of this Executive.

On Sunday's Politics Show we hope to hear from ministers from all the main parties and we investigate how the spending review will impact on the ground.

Jim

PS - Insults were flying at Stormont last week, much to the disgust of the Speaker. But trust an older generation to have done it better. Disraeli summed up his view of Gladstone with the following: "He has not one single redeeming defect." And also said it would be a "disaster" if Gladstone were to fall into the Thames but a "calamity" were someone to fish him out.

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