03 October 2003
Prime Minister Tony Blair's claim that public service investment is 'not disappearing down some black hole' was dealt an immediate blow this week with the publication of figures showing that extra resources have been consumed by higher costs.
Senior economists said the situation would put further pressure on Chancellor Gordon Brown to scale back his ambitious public spending programme – or raise taxes again to meet possible shortfalls.
Figures released on September 30 by the Treasury and the Office for National Statistics estimate public sector inflation at 7.8%, more than double the headline rate in the wider economy.
Critics claimed, therefore, that despite an 11.8% investment increase in the second quarter, compared with the same period last year, most of the resources were being eaten up by new costs such as higher pay settlements for staff.
A spokesman for the Conservative Party said: 'These figures dispel the myth that the government can simply throw taxpayers' cash at complex problems and expect to see the benefits passed on to citizens.'
Overall, the public finances have started the current financial year in worse shape than expected. ONS figures show that the cumulative budget deficit in the first five months of the 2003/04 year was £14.5bn – £3.1bn higher than Treasury forecasts.
Even the good news on the wider economy this week was offset by criticisms of Brown's handling of the public sector. Revised national accounts showed that the economy has been growing faster than expected, with GDP growth estimates for the March-June quarter up from 0.3% to 0.6%.
But Christine Frayne, senior researcher at the Institute for Fiscal Studies, said: '[This] makes it less easy to blame the worsening of the public finances since the Budget on weak economic growth.
'If the current deterioration continues and cannot be blamed on the economic cycle, it will step up the pressure on the chancellor to raise taxes at some point or scale back his spending plans.'
PFoct2003
