There is a big gap between what the experts say and what is going on. The experts say we are cutting the deficit primarily by cutting public spending. When people hear that 80% of the task of deficit reduction comes from spending cuts, they think that means public spending is actually declining in cash terms.
Starting with an inherited deficit of £160bn people would think that meant cutting £128bn off public spending to remove the deficit, with the remaining £32 bn coming from tax rises. Of course nothing like that is happening, as all elected politicians agreee you cannot cut that sort of money out of the budgets given the importance of many public services.
Instead public spending will go up every year in cash terms during the period of deficit reduction. They used to say that it would be cut in real terms, though the figures for the first three years of the programme of deficit reduction show there has in practice been small real increases in current spending each year. Far from causing low growth or no growth as the opponents of austerity have argued, public spending has made a positive impact to total output and incomes since 2010. Within the spending totals welfare, debt interest, overseas aid and health take a rising proportion, so some other programmes are experiencing cash cuts.
So how is the deficit being brought down? It is coming down for one simple reason – tax revenues are rising. The idea of the gradual programme is to make the task easier, by allowing more tax revenue to arise naturally through the growth of the economy. Where the government has tried higher tax rates on income and capital gains it has actually damaged the revenues, not increased them. If any government tried to reduce the deficit quickly through a series of tax rate rises, considerable damage would be done to the economy and tax revenues might fall.
Growth has always been the main requirement to help correct the large imbalances in the economy without pushing it into a deep recession. Growth results from change to the economy, with more successful and more helpful activities increasing. We need more exports, more homes, more domestically produced goods to replace imports. The budget seeks to help bring that about.