The Autumn Spending Review announced by the chancellor Sajid Javid barely raised a ripple last week.
Yet the increase planned in 2020/21 for what the Treasury calls “day-to-day departmental spending” is the highest for 15 years, no less than 4.1 per cent in real terms.
This spending pays the running costs of public services, the main component of course being public sector wages. An increase of this size ought to mean better services, although the Gordon Brown years demonstrated quite clearly that more spending need not mean an improved service.
This number only represents 37 per cent of total public spending. Considerably more is spent on welfare benefits, pensions, and interest on the national debt. The squeeze is still on here, so the overall rise in total current public spending is more modest, at just 2.0 per cent after allowing for inflation.
Nevertheless, Javid’s plan does represent a step up in the move away from austerity envisaged by the former chancellor Philip Hammond in last year’s autumn Spending Review.
Still, this pales in comparison to what is envisaged for the public finances under the current Republican administration in the US. The Congressional Budget Office (CBO) there notes that the federal budget deficit for 2019 will be $960bn. Budget deficits are projected to average $1.2 trillion a year between 2020 and 2029.
The CBO calculates that this will push up federal government debt to 95 per cent of GDP, the highest level since the late 1940s.
On both sides of the Atlantic, the move away from austerity represents a major shift in the narrative around public sector debt. It is now, it seems, okay to feel relaxed about government borrowing.
The mood in mainstream academic macroeconomics has also shifted. Ken Rogoff, a former chief economist at the IMF, said in 2010 that a debt-to-GDP ratio above 90 per cent risked a substantial reduction in the long-term growth rate (a view shared by many in developed countries), triggering a wave of austerity.
Yet in February this year, he changed his tune, saying that the steady decline in global real interest rates meant that the debt-to-GDP ratio was no longer a concern.
Olivier Blanchard, another former IMF chief economist, made a similar point earlier this year, when he argued that, as the real rate of interest is lower than the real growth rate, future interest payments on debt could be met out of the proceeds of growth.
While this is not necessarily unusual (such a state of affairs has been the case often enough in the last 150 years), the argument that governments should use it as an excuse to build up debt very definitely is.
The shift in attitude has implications in politics, too. For years, right-wing parties have painted the left as being as being spendthrift and irresponsible.
With an election seemingly inevitable in the UK, it will be interesting to see whether the Conservatives – having turned on the taps – can make that narrative stick to Jeremy Corbyn.