THE CONSEQUENCES OF MR KEYNES.pdf - Institute of Economic ...

costs of government expenditure because it is planned and committed
under this system in real terms, irrespective of the money
costs that emerge. The PESC projections of government
expenditure are all made in the prices ruling at the time of the
survey, with an allowance made for a relative price effect
resulting from anticipated movements of public compared with
private wages and other costs. The unforeseen, although predictable,
consequence of this system of planning public expenditure
in terms of 'funny money' (as Samuel Brittan has
described it) is that government departments have absolutely
no incentive to economise on their cash outgoings when it outruns
their nominal budget allocation. As they have been given
real resource commitments under PESC, irrespective of the
money costs, departments 'have been able to bill the Treasury
for increases in pay [etc.], simply like that'. 1
Fifth, the five-year horizon ofthe PESC system of'controlling'
government expenditure creates the possibility that difficult
decisions on government expenditure reductions (due, say, to a
crisis of overseas confidence) will be deferred to the distant
future. Faced with a call for 'cuts', Ministers and administrators
in the spending departments are prepared to trade with the
Treasury for the maintenance of their current/immediate future
expenditure while conceding large cuts on their planned programmes
in more distant years. The assumption—evidenced in
the 'hump effect'—is that they can later be re-negotiated via the
application of pressure in Cabinet. 'Slashing' cuts in government
expenditure are then announced by the Chancellor to
impress overseas opinion. In reality, this represents a postponement
of expenditure cuts to the distant future. Moreover, they
are likely to be reversed as that future draws nearer: cuts are
always manana. The cuts of £1,100 million for 1976-77 (at 1975
Survey Prices) announced in the Budget of April 1975 were, for
instance, more than reversed in the March 1976 PESC White
Paper.
Sixth, and finally, the PESC measures rest implicitly on the
basic assumption that all government expenditure is on public
goods, which must necessarily be financed by government, and
which are, therefore, appropriately controlled and controllable
by government machinery. An examination of British government
expenditure quickly reveals, however, that the bulk of it
1 W. Godley, 'The Measurement and Control of Public Expenditure', Economic
Policy Review, No. 2, March 1976.
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