‘Unlike its constituents, the UK government is still increasing its expenditure’

As George Osborne told Britain’s Conservative Party conference last month: “You can’t borrow your way out of debt.”

In a sombre speech, the chancellor explained why he was sticking to his deficit reduction strategy, despite the weakness of the UK economy.

Two days later, the prime minister spoke of the pressing need to pay down debt, likening his government’s actions to that of an ordinary family dealing with a credit card overspend.

It’s fine rhetoric, designed to make clear to everyone listening – especially the international money markets – that this government won’t flinch from its austerity programme. But is it anything more than rhetoric?

Closer inspection of spending figures shows that the coalition government is racking up enormous debts. Unlike ordinary British families, who are indeed cutting back their spending, their government is still increasing its expenditure.

Month for month, public spending has been higher this year than last year and public debt is getting bigger. The only difference since Labour left power is that the rate of increase (in debt and spending) has slowed.

It suits both the chancellor and Ed Balls, his Labour opponent, to exaggerate the difference; the chancellor wants the markets to believe that he is operating a tough programme of retrenchment that will enable him to reach his deficit targets, whereas Mr Balls wants voters to think that a Labour government would have been able to cut modestly, with little impact on services.

Almost no attention is paid to the government’s failure to rein in the dizzying excesses of Labour’s spending spree. British central government spending in August this year was 7.2 per cent higher than in the same month last year.

By 2015, public expenditure will still be more than 50 per cent higher (in real terms) than it was in 1997. With inflation exceeding Treasury forecasts and economic growth stalling, it is likely that these figures will be revised upwards. Cuts in some departments have been more than offset by significant spending increases elsewhere.

In the summer of 2010, shortly after the general election, both David Cameron and George Osborne cited the successful deficit reduction strategy adopted by the Canadian government in the mid-1990s.

Faced with a deficit of just under 10 per cent of GDP (comparable with the UK’s 11.5 per cent now), Canada introduced a programme of cuts that took just four years to get the country back into surplus.

Reducing total expenditure by a fifth, the essence of the Canadian approach was to require all government departments to justify every item of spending. In the civil service, jobs were cut by 12 per cent.

No budgets were protected. As government spending fell, resources were freed up for private sector investment and growth, so that the ensuing years saw strong increases in employment and economic activity, in turn generating extra tax revenue.

That’s the kind of virtuous circle George Osborne wanted to generate, but his hope that it could be achieved by gently slimming down Labour’s bloated state sector was too optimistic.

As Treasury forecasts show, his plan to shrink the deficit was never reliant on expenditure cuts alone, but assumed a steady increase in economic growth as the UK bounced back from recession.

Events have shown that such growth cannot be taken for granted and Mr Osborne’s critics have pointed to his failure to come up with distinctive policies to regenerate the economy.

Instead of a virtuous circle, the chancellor is faced with a vicious downward spiral, in which the prospect of deficit reduction recedes as revenues fall. Radical measures are needed to break out of the loop and restore confidence.

Mr Osborne’s Autumn Statement at the end of November provides an opportunity to announce a big programme of deregulation, accompanied by targeted tax cuts, to boost enterprise and employment.

There is also a strong case for revisiting departmental spending plans to reduce all areas of government activity.