Episode 1 Your Money and How They Spend It

Spending has been Britain's national obsession.

There's nothing we've liked better than to splash a bit of cash.

The richer we've got, the more we've all fallen in love with spending.

And you know what?

So have our politicians.

Only now the party's over.

We're feeling the pinch

and our politicians are facing some hard choices.

In this series I'm out to get us talking about your money

and how they spend it. We'll examine who gets what and why.

-So do you want to give her the money?

-Actually, no.

Oh, you don't want to give old people the money?!

-I thought you said you did.

-Old working class people.

And I'll be showing what bang you get for your buck.

The cost to you -

a mere £5 billion.

C'mon! We'll find out who forks out the most in tax...

..and explore the bizarre way the system actually works.

They have VAT but they don't have VAT,

but that's not a biscuit it's a cake.

It's as clear as mud, isn't it? It really, really is.

I'll be finding out why spending's set to keep rising.

Well, there's not many people coming to you saying,

"Here's what we can stop doing." There's a lot of people queuing up

saying "Here's what we can start doing,

"here's somewhere else to spend our money."

And how politicians keep getting into tangles over tax.

Talking about tax and politics is like talking about sex in public.

Everyone knows it's around, but they don't like to talk about it.

We'll be discovering why politicians keep fooling themselves

that the economy will always be plain sailing.

But what they and what we amateur sailors have to know

is that it can all change incredibly fast.

Right now, we're facing the biggest spending squeeze

since the Second World War.

Tonight, we find out how on earth we got here.

If you've ever wondered how politicians

spend your money or why they spend it in the way they do,

follow me - we'll find out.

I'm on a mission to get us talking about how we spend,

and where better to start than one of Britain's shopping temples -

Manchester's Trafford Centre.

I've got something in my briefcase which means

I've had to borrow a security guard.

It's full of your money.

That's right, yours.

This is how much the government spends

on behalf of every family each year.

About £20?!

About £20?

'£20! Well, how much do you reckon?'

-I've got something for you here.

-Oh, yeah!

-This is for you. Your money.

-Lovely.

-How much is there?

£4,000?

£5,000? £10,000?

£20,000?

£22,000. That's yours.

-Ah, lovely.

-It's a lot of money!

-Oh, I know. Taxpayers' money.

-Yes.

-Oh, my God!

-Is that a bit tempting?

Yes, it's nice.

Am I making you think "I'd like some of that"?

-Do they spend it well?

-I wouldn't say so, no.

-Why not?

Cos we don't see much of it.

It would definitely help in my life.

Actually, it wouldn't. It's all fake I'm afraid.

I'll still take it!

You see, while we all hear a lot about cuts,

we don't have a clear idea about what the government

actually spends on us.

So let's start with that £22,000 I've been hawking around.

Where does it all go?

Add all those £22,000s up together

and you get a pretty eye-watering amount - £692 billion.

Now there are seven big budgets

which make up more than three quarters of all government spending.

Let's have a look at them.

There's transport, law and order,

defence and, at the moment, bigger than them all, debt interest.

But the three really big ones are these.

Education - that's about £2,800 per family.

In total, over £90 billion.

Health - that's about £3,800 per family

or in total about £121 billion.

And then Social Security, the whopper, £194 billion.

For every family, that's just over £6,000.

That, of course, isn't just benefits for the unemployed or disabled

but the big pension bill as well.

Now let's ignore the deficit for a moment.

The big problem facing politicians long term is that those big bills

just keep rising.

This is Spitalfields Market in London,

where, once a month, pensioners gather for a tea dance.

Many here are over 80 -

glorious proof that we are living longer, often healthier lives

but ones, let's face it, with higher bills attached.

First things first though. Could I make it onto Strictly?

I haven't a clue where I'm going. You're very good at leading.

'In 1901, there were just 60,000 people aged 85 or over.'

You can't, you just know it in your head!

'Now there are 1.5 million, 25 times as many.

'And that figure is set to double in the next 20 years.

'There'll be 3 million over 85 year olds.'

Am I learning?

'What we're all learning is just how expensive that will be.'

You're getting there!

I can now feel the rhythm, I'm not sure what I'm doing with my...

-Oh!

-Sorry.

-Sorry, my fault.

In 50 years' time, we're forecast to be spending £80 billion more

each year just to cope with our ageing population.

That's more than double the defence budget.

If you had to hold up cards like they do on Strictly?

-On your dancing?

-My dancing.

-You can't dance.

-No?

-Oh, don't say that.

-No, he can't.

-No?(!)

I didn't tread on your toes too often?

No, you didn't tread on my toes at all. You were a perfect gentleman.

Thank you very much.

Now with so many people living to a good age,

do you ever think where the money will come from to pay for it?

No, I don't worry about that because I'll be six feet under by then!

It's my problem, you mean?

I think our children have that worry, not us.

It's going to get more pricey, isn't it,

-with so many people living older?

-Yes, it certainly is.

But I'm not that anxious to go anywhere yet!

I'm going to hang on as long as possible,

and I hope everyone else does.

Mind you, we've worked a lot of years,

-and we've paid in a lot of years.

-Yeah.

-All of us.

Even if you dance as badly as I do, you leave the tea dance

at Spitalfields feeling pretty good.

It's a celebration of growing older, rather than people moping about it.

And yet as our politicians try to keep in step

with our ever-ageing population, they find themselves

getting into a tangle too.

You see, politicians find it very hard to cut back

on spending on the elderly so let me tell you a story.

It's about winter fuel allowance, a new benefit introduced

by Labour in 1997 at a cost

of £268 million in today's money.

The winter fuel allowance, when it was introduced,

was intended as just a little bit of extra help.

£20 a year for every pensioner, regardless of how wealthy they were.

But that was soon to change when Gordon Brown was accused of being

a miser when he introduced an increase in the weekly pension

of just 75p.

The fury that that produced

confirmed what every politician knows -

there is nothing so terrifying as a pensioner who feels wronged.

Tony Blair even dubbed them "like Rottweilers on speed."

Britain's pensioners went into battle over the 75p rise.

Oh, it was an insult wasn't it?

Absolute insult to all of us.

Norah Knight was so angry about this year's 75p pension rise

she sent it back to Gordon Brown in the form of a cheque.

Then to add insult to injury,

she was astounded to find the Treasury cashed her cheque.

And when pensioners start hijacking buses you know you're in trouble.

ALL: What do we want, pensions rights!

The then Chancellor Gordon Brown

decided to throw money at the problem.

And winter fuel allowance went up...

The winter allowance is currently paid to all 8 million

elderly households at £20.

I've decided to raise it to £100.

..and up...

It will be paid not at £150,

but at £200 for every...

CRIES OF DISCONTENT

..for every pensioner household.

..and up...

For this year, for those over 70, on top of the winter fuel payment,

we will pay an additional £100 to each household.

So by 2004, the cost had risen to...

£2.3 billion, eight times more than it originally cost.

With fuel bills rising you might say, "Why not?"

But can we really afford to keep giving it to everyone,

no matter how rich they are?

I've got £200 here, right.

I want to know is it a good idea that the government

gives £200 to old people for winter fuel allowance.

-Is that a good idea?

-Old people should be prioritised

cos they don't work, and the pension is not really a good rate.

-So give them this money?

-Yeah, absolutely, yeah.

-So do you want to give her the money?

-Actually, no.

Oh, you don't want to give old people the money?

-I thought you did want to give them money?

-Old working class people.

-How about him?

-Definitely not.

-Don't give him the money.

-Him?

No way. These people are like, very wealthy.

-Definitely.

-Definitely a good idea?

-Yeah. Heat or eat.

Should he get the £200?

-I suppose it has to be means tested, I suppose.

-What about her?

-No.

-Or him?

I think they're quite well off.

They shouldn't get the £200?

Umm... When you put it like that I suppose, no.

So we like the idea of spending on the elderly,

but we're not so sure about handouts to those who don't need them.

And some wealthy pensioners agree, like nightclub impresario,

Peter Stringfellow,

a man so outraged by getting the money,

he went to the trouble of trying to send it back.

She's the big lady herself.

-So Peter, you're 70?

-71st year.

-Not short of a bob or two?

-No.

-More than one house?

-Two.

-More than one nightclub?

-Three.

Pay yourself enough to earn top rate tax?

Not too short of half a million a year.

Half a million pounds a year.

So how important is getting £200 a year from the government?

It's embarrassing to me.

I don't ask for it, I don't expect it,

it was not something that I knew was going to come along.

You wanted the government to give you the chance to say no?

Yes I did. Eventually, I got a letter back from them

saying you will not be receiving it in future!

"However, if you change your mind please let us know

"and then we'll reinstate it."

But that's not what I wanted.

I wanted them to change the whole policy of not giving it

to people who don't need it.

I think the problem with winter fuel allowance, it's indiscriminate

it's not targeted, it's not means tested so your actually giving

a reasonably significant amount of money overall

to people who didn't need it.

-Why did it happen then?

-It happened because we have a great sympathy for the elderly.

We wanted and we pledged to create dignity for people in their old age.

You were in a hole as a government?

You'd increased the pension by 75p.

We had also shot ourselves in the foot one year.

by giving a very modest increase in the state pension

and there was inevitably a great backlash against that

so there was a bit of politics in this.

A bit of politics which comes at a very high price

and doesn't target money on those who need it most.

Even those who worked closely with Gordon Brown at Number 10

think it's not the best way to spend our money.

If you go and ask Treasury officials,

they'd love to take away fuel allowance.

It would be first on their list.

So why hasn't it been cut?

Politics.

Because older people vote more than younger people.

They mobilise themselves. They want to defend their benefits.

And, you know, it's very, very hard in those circumstances

to confront them with the loss of a benefit,

and so, whatever the mandarins say, whatever the number crunchers say,

whatever policy wonks say, it comes down to a political judgement.

In the dying hours of last year's general election campaign,

David Cameron had to make exactly that judgement.

Labour's election supremos were targeting him,

claiming he'd axe benefits for the elderly.

The question was - how would he react?

David Cameron's whole strategy in changing the face

of the Conservative party was to say "We're caring."

So it's very difficult for them to repeal measures like

the winter fuel allowance cos you can imagine not only we as the opposition,

but many others, would come down on him like a tonne of bricks.

Let me say very clearly to pensioners.

If you have a Conservative government,

your winter fuel allowance, your bus pass, your pension credit,

your free TV licence, all these things are safe.

You can read my lips, that is a promise from my heart.

Can I ask you a personal question?

Do you get the winter fuel allowance?

I get the winter fuel allowance.

I have a Government car, so I don't get value for money

out of my pensioner's bus pass, but I regard them as tax rebates.

Is it sensible giving people with a reasonable amount of money,

tax-free sums?

I think we have to demonstrate our commitment to pensioners

and it's a message to pensioners that the Government

does have regard to the fact that pensioners are entitled

to various benefits. And we discussed it before the election,

we announced it before the election. It's an election promise we're keeping.

The reason that first Labour and then Conservative ministers

carried on spending billions of pounds on a policy

they've got doubts about is because they saw it

as a powerful political symbol

of how much they cared about the elderly.

The money that's still being spent on the winter fuel allowance

is not short of the amount that's been cut

from the university budget forcing the trebling of tuition fees.

Students may protest, they may even riot,

but politicians are much more scared of their grannies.

And if politicians daren't mess with spending on the elderly,

just imagine how wary they are of touching

the biggest sacred cow of them all - the NHS.

It all goes back to a summer's day just after the war,

in a suburb just outside Manchester.

It's been big, bold decisions to do things together

that have really driven up public spending.

A little over 60 years ago, here at the Trafford General Hospital,

the then Minister Of Health, Aneurin Bevan, launched the NHS.

It gave Britain, he said, "the moral leadership of the world."

It also gave Britain a mighty big bill.

Nye Bevan and the other founders of the NHS thought we'd get healthier

so demand would fall. In fact, spending on the health service

has catapulted from £11 billion in today's money

to eleven times that much now - £121 billion.

One of the things that people often missed,

was the way the demand to spend money would grow,

particularly because we're so much better off than we used to be.

In 1955 we spent 3% of national income on the health service.

Now we spend nearly 9%

and there's been a steady growth year after year,

decade after decade,

an extra 1% of national income each decade, and after a little while,

those one percents of national income

add up to an awful lot of money.

Ever since that day here in Trafford in 1948,

the NHS has been so much more than a mere way of organising healthcare.

It's been a love affair,

it's been, if you like, the closest this country gets

to a national religion.

And politicians know, therefore, they have to keep on paying

to keep the faith.

It's very expensive, and all wealthy states spend an ever higher

proportion of their wealth on health care.

Even if you're running it with iron discipline,

it will cost you more, health.

There's no other area at all where public spending is like that.

In Canada, when they had a huge deficit, this is what they did.

That used to be a hospital.

Can you imagine them blowing one up here, in Britain?

Health's sacred status with us voters

means our politicians wouldn't dare.

Not that they wouldn't want to.

For years the medical advice to them has been that having fewer hospitals

would save money which could be better spent and that's not all...

Closing hospitals is quite definitely a way

to get better healthcare particularly with new drugs,

with new technology and we can do operations -

cataract operations you can do in a local GP surgery.

No-one goes and stays in hospital to the degree they did.

But there's one thing that stops that happening. It's you and me.

This is the King George Hospital in Ilford, east of London.

Local NHS bosses want to shut its maternity and A&E units

and move them to a hospital in Romford, a few miles up the road.

But in a local church hall,

residents are gathering to fight the proposals.

It's massive, it's a really big issue.

Everyone sees it as a money saving exercise.

Saving money first, giving good health service second.

That's the crux of the matter really.

I'm not going to say economical with the truth.

They told us it's nothing to do with money. Of course it's about money.

34,000 residents signed a petition against closing

parts of King George Hospital.

Many of us like our services local

and we want to keep them that way.

And the first proposals they came up with...

And so do the local MPs.

Labour and Tories are united in backing this campaign.

And if we keep together, we keep up the campaign, we will succeed.

In opposition, David Cameron promised a bare knuckle fight

to save district hospitals.

I think it's ridiculous that at a time

when the population is growing, when more people are at A&E units,

when more babies are being born,

when our health needs are getting greater,

that we're shutting down maternity units

and accident and emergency units.

The government says the days of the district general hospital are over.

I completely disagree.

But now he's in government, David Cameron

has, in the last few weeks, approved the closure of A&E

and maternity units not just at King George's

but another London hospital.

The decision there has been debated for 17 years.

It all takes so long

because politicians hate to be seen to close hospitals.

I've lost count of the numbers of Members Of Parliament

that would say to me,

"I understand completely why you're doing this,

"I understand all the clinical arguments and I understand

"and sympathise with all of those but you must understand

"publicly I have to take this position."

I have to fight to keep my hospital open?

I have to fight, and be seen to fight, to keep my hospital open.

So fear of us, the voters,

helps push up spending on the essentials like pensions and health.

And then there are all those extra little things that are nice to have.

Like money for culture and the arts.

People used to all go to Margate for fun and frolics at the seaside.

As of late, though, this bit of the Kent coast has been better

known for its deprivation, and high rate of unemployment.

Yet what's this? A brand new art gallery.

The new Turner Contemporary, opened earlier this year.

A dazzling addition to the sea front costing £14 million of public money.

Its sparse, but striking displays have already

pulled in over 260,000 visitors.

And they've put Margate back on the map.

Victoria Pomery is the gallery's director.

What a spectacular view it is.

You must at times see the real poverty there is here,

how, in a sense, do you argue to yourself the reason why

people in very low paid jobs should pay their taxes

to build what is in a sense a real luxury?

I don't see the Arts as a luxury,

I see the Arts as integral to our lives,

all of our lives, whoever we are. And, for me, it's really important

that everyone can access fantastic art that makes them think

in different ways about themselves and the world they live in.

Isn't this, in the end, just a bit of fluff?

I don't think this is fluff at all.

I think this is serious, we are really ambitious,

we want to be part of Margate's history and part of its future,

and we feel we can really help and support the wider regeneration

and renewal of this area.

But not everyone's so sure. Some locals deeply resent the gallery.

Dawn McLarren is a local mum,

who thinks the money was desperately needed elsewhere.

I've got a son, he's 17, he's about to leave college,

he's got no work, no opportunity here whatsoever.

And nothing to do.

How do you feel about public money going to that new gallery?

Very angry. Very, very, angry.

But around the sea front there are a few new shops and cafes opening up.

Just maybe the first signs of long-awaited regeneration.

Ian Driver is a local councillor.

I do think if you look at this in the long term -

three, four, five years down the road,

it will be creating more jobs and people will feel the benefit of it.

Whether you regard the Turner Contemporary

as a glorious gallery that can revive a town,

or a vast and overpriced seaside shed,

it is one symbol of what the surge in public spending

in the New Labour years actually paid for.

The cost of building it has been met.

But the costs of running it, though far from vast,

is yet one more addition to the national accounts.

Arts spending for the whole of England is... £447 million.

A drop in the ocean of public spending,

and a lot less than winter fuel allowance.

But when it comes to how governments spend your money,

it's all the little things that add up.

People are always coming up with innumerable small demands,

and they say if this money was used imaginatively it does

an immense amount of political good.

All the time you get people saying,

"I know money's tight but could we just spend a little?"

Well, there's not many people coming to you saying,

"Here's what we can stop doing."

There's people queuing outside your door saying,

"Here's what we can start doing, here's somewhere else to spend our money."

If that was balanced by one queue of people saying,

"Let's save money here," and another queue of people saying,

"Let's spend it here,"

it might be a bit easier to be a government minister.

Ministers can expect a headline, a cheer even,

when they announce a new way to spend public money.

But there's all too often a big and rather expensive gap

between their promises and cold, hard reality.

Welcome to the fire control centre for the North East of England,

built to keep us all safer in the event not just of fires,

but floods and terrorist attacks.

Using the latest technology, satellites even,

to keep track of fire engines.

And what's more, we were told, it would improve efficiency, too.

Just one problem.

The technology didn't work, the building behind me is empty.

At a cost to you of £97,000 a month.

For the next 24 years.

And there are eight others like it around the country.

The cost? More than England's Arts Budget.

£469 million.

For which you get in return... Nothing.

It's just the most vivid example of a long list of projects

where the original idea sounded good,

but which have been hopelessly mismanaged.

From the Typhoon jet which came in £3.5 billion over budget,

to the doomed NHS IT project.

It's cost billions of pounds of taxpayers money,

but it doesn't work.

It cost at least £6 billion and counting.

You should not be afraid, as you would in your own household

or your own business, to say do we actually need to do this?

Is this new, exciting project or pilot that we're setting up,

is it going to make any difference to the way people behave,

or the way in which they live?

Sometimes we've not asked those tough questions

in the way that we should.

Now whether it's avoiding waste,

or controlling the insatiable demand for public services,

or deciding what not to do at all requires...

well, self control.

There are three things which I have engaged in

which have a remarkable lot in common.

One of them is bringing up children, another is dieting,

which I've also done, and the third is controlling public expenditure.

And in each case, an important part of the art

or the skill whatever it is,

is the ability to say no and to stick to it.

This is the essence of what the Treasury's about.

If the Treasury had a motto, it would be the single word "no",

and it needs to be.

But the failure of governments to say no has had consequences.

They keep spending money they haven't really got.

It's how we've ended up with a deficit.

Britain has got a problem, a very big problem. And it's this.

Last year, the government raised £549 billion in tax.

But spent £692 billion.

Leaving a deficit, or a gap, of £143 billion.

But now, just take a look at this.

Here is government spending since the Second World War.

It's measured as a percentage of the economy as whole,

or GDP - Gross Domestic Product.

The peaks are recessions. And you can see them here for the mid-'70s,

for the mid-'80s, the early '90s and then finally

for the banking crisis of three years ago,

which helped create the largest deficit since the war.

Now let's add a line for taxes,

measured in exactly the same way as a share of the economy.

Look how often spending is higher than tax.

In other words how often the economy is in the red, in good or bad times,

whether there's a Labour or a Conservative government.

Deficits have been the name of the game

for pretty much all of the past half century.

Even so, today's deficit is a whopper.

It may date from the banking crisis,

but the last Labour government had been spending more

than it got in taxes for six years running up to then.

Gordon Brown used to say that he was borrowing to invest.

But his critics said he should have been saving for a rainy day.

The reason we keep running up deficits

is not just that politicians can't say no.

It's that sometimes they behave like every day

will be a day when the sun is shining.

It's a mistake that pretty much anybody really could make,

and it's best explained perhaps by something I like to do,

or try to do, when I'm not covering politics.

You see, think of our politicians as sailors, just like me today.

They've got to judge the conditions as they decide how to spend,

and keep an eye out for storms on the horizon.

It's beautiful out here on the water,

and when economic conditions are this good,

no wonder our politicians are tempted to set a course

to carry on increasing spending, as if it will always be this way.

After all, the sun is out, the wind is in our sails.

But what they, and what we amateur sailors have to know,

is it can all change incredibly fast,

and then we're in real trouble.

And that's what our politicians can forget -

how fast the weather can turn, how bad the storms can be.

And it's not just the last Labour government

because the Tories did it too.

-Well?

-Five and 15. Working for you now, working for you now.

Remember the late '80s?

The economy was booming, the City was taking off,

and the then Conservative government made a classic mistake.

They thought it would go on forever, and increased spending.

'The mistake they made was they thought'

that the tax revenue that was coming from an overheated economy,

was coming from an economy that was working extraordinarily well.

So they thought it would always be there.

The analogy would be a naive young adult

who thinks that because they've had a fabulous year in their business,

it's going to be like that forever.

And so they take on much larger liabilities than they really should,

and they repent at their leisure.

By the early '90s, the Conservatives had a new Prime Minister.

But then came a recession which pushed spending up

and tax revenues down.

By 1993, they had a deficit of £50 billion.

We made a mistake in the late '80s.

It was a tiny wobble compared with what's happened

in the last five years,

I have to say. A difference of degree. But a bit of the same thing.

It's been done by many countries.

It's been done by Britain frequently, ever since the war.

And guess what? Barely 10 years later, the Labour Government

would make exactly the same mistake, only in Technicolour.

After two years restraint, spending roared away.

We had to spend more money as a country

because health is a matter of decency,

education is a matter of our future.

Now it's sometimes difficult to remember

when you look at new hospitals,

new schools around the country now that they had to be paid for.

And while the economy boomed and the taxes rolled in,

all seemed well.

In the middle of the boom they misjudged it.

The boom produced great tax revenues,

any government could borrow as much money as it liked.

People like me or Vince Cable moaning away about deficit and debt

were regarded as old-fashioned, we were the miserables

who didn't understand new politics, the new economic model.

But the government had missed something crucial about where

a hefty chunk of all that money was coming from.

Over the last 30 years,

the Treasury has benefited from two vast windfalls -

not just North Sea Oil, but also the one that people often forget -

the City of London, generating billions of pounds which the Government can spend.

There is, of course, one major difference,

which the last Labour Government was to discover.

North Sea oil runs out very slowly,

whereas the flow of cash from the City can run out just like that.

The big problem we had is that we were

very dependent on a flow of revenue from one particular source

and that was the financial services industry,

a volatile sector that when it goes wrong goes very wrong.

Whenever you're quite dependent on one source,

and this is something which had been building up for decades,

then you do have to ask yourself what if?

What if it stops, or what if it slows down?

What's your fall back position?

In the summer of 2008, his "what if" moment arrived.

The British economy was teetering on the brink of recession.

Alistair Darling took top Treasury civil servants away

for the day to Dorneywood, the Chancellor's official country house.

It's an oasis of calm, really, and I wanted us

to sit down and take stock.

We were sitting in an armchair overlooking these delightful gardens

in southern England and we were talking about this,

and the secretary said you know, borrowing could hit £100 billion.

When you start talking about £100 billion,

you know, that is serious money.

That is when you think, this is bad.

-Was there an intake of breath?

-Well, there was amongst some.

-A shaking of heads.

-I'd just come back from a Leonard Cohen concert

so actually I was in quite a gloomy frame of mind anyway!

So I thought, fair enough, we'll just have to deal with it.

# Dance me to your beauty

# With a burning violin

# Dance me through the panic

# Till I'm gathered safely in. #

What had looked like a downturn had became a crash.

The deficit would grow much larger than £100 billion

and ministers would spend even more, trying to avert disaster.

Spend now and pay later, Labour's plan to avoid a long recession.

The country would soon want to know how it could all be paid for.

What happened when the financial crisis struck, is that we knew

immediately we had to accelerate out of the storm or be buried in it.

The public were quite frightened of those telephone number figures that

they saw, you know, on those

BBC News reports at 10 o'clock.

And they thought, hold on a moment,

we've got to do something about this,

otherwise we're going to be saddling future generations with

a colossal amount of debt, and that is not the responsible thing to do.

But for many months, Gordon Brown instructed his ministers

not to even talk about the drastic measures which were sure to

be needed to tackle the deficit.

Gordon's nervousness was that it would just sound like cuts.

He didn't want to sue the "c word" at all, did he, the word cuts?

We had so many discussions about this,

more than I can care to remember,

until we got to his TUC speech in September of 2009.

And he used the word "cuts" not once,

not twice, I think it was something like seven or eight times.

Labour will cut costs, cut inefficiencies,

cut unnecessary programmes and cut lower priority budgets.

And he came back from Brighton or wherever it was

and said, "OK, satisfied?"

It was too late.

By then the sheer size of the deficit had damaged

Gordon Brown's economic credibility

and handed the argument to his enemies.

It was the biggest loss of control over fiscal policy and tax

and spending that anybody now living can remember.

By the time of the last general election,

Britain had the biggest deficit since the war - £160 billion.

You do need to just keep your eye

on how much you are actually spending,

the what if question, what if this slows down, how much margin have you got?

But I have to say that there may have been people around

who said spend less, but the majority, and certainly it

was a political consensus, maybe that was a bad thing,

but political consensus was that we should be spending more, not less.

Not any more.

A new government has ushered in a new age of austerity.

Are the cuts going to hurt, Chancellor?

This is a dramatic change of political and economic strategy,

and, like the last Chancellor, he can only wait and watch and hope.

We have moved from an era when choices could be avoided

to one where they simply have to be made.

The decisions we make will affect every single person in this country.

And the effects of those decisions will stay with us for years.

Every day we hear about cuts to pensions, pay, services -

all choices about who gets what.

But some questions are still considered too explosive to ask,

like why if you live in some parts of Britain,

you'll get more spent on you than people in other parts.

Take Scotland -

public spending is, on average, £10,212 per head.

Whereas in England, it's £8,588.

That's a gap of £1,624 - just under 20%.

So what difference does that extra money make?

Well, one possible answer can be found here at Edinburgh University.

It's Freshers Fair - where you can sign up to

anything from tribal drumming to pole dancing -

however much you pay to come here in tuition fees, which, of course,

depends on where you're from.

I'm Anna, and I'm from Yorkshire,

and I pay at the moment about £1,700 a year.

I'm Matthew, originally from London, and I spend the same.

I'm Matt, I'm from Edinburgh, and I pay nothing at all.

-And looking very pleased.

-Looking very pleased!

You have to preside over a student body where some pay and some don't.

Yes, we have huge conflicts and we have inequalities of fee level,

but it shouldn't result in inequalities of educational provision

and that's what we're making sure remains frontline.

And it's not just the difference between Scots and English people?

Not at all, it's the difference between Scots and English,

also Europeans still get it for free,

even though the English are paying, because of the EU,

and international students pay through-the-roof fees to be here.

There are huge inequalities that I don't think should exist.

But those inequalities are going to get starker as fees rise.

English and Northern Irish students arriving here next year could

face a bill up to £36,000 more overall

than their Scottish or European friends.

Welsh students will pay less than that, but more than the Scots.

And tuition fees are just one example of what Scots seem to get

which the rest of Britain doesn't - is that unfair,

or just a consequence of devolution?

What is your message to an English parent who says

my child goes to Edinburgh University and pays £9,000,

a Scot doesn't pay that, a Pole doesn't pay that, how's that fair?

I would change your government at Westminster.

When I was an MP at Westminster I voted

against the Labour Government introducing tuition fees.

If I was still an MP at Westminster,

I'd have voted against the Tory and Liberal Government introducing it.

I cannot dictate the politics of England.

But the parent might say,

it's my English taxes that are paying for Alex Salmond

to dole out money to stop tuition fees in Scotland?

The Scottish parent might say Scottish revenue

keeps the United Kingdom Treasury afloat.

In other words, North Sea oil.

Scots, Alex Salmond is saying, pay more in as well as getting more out.

As do, incidentally, people in London.

The maths is more complex than it first appears.

There is no simple fact when it comes to measuring

the difference between spending in Scotland and in England.

There are arguments about how to measure need,

how to take into account geography and our old friend,

the contribution of oil revenues.

There is, though, one simple fact about politics in Westminster.

For more than 30 years, politicians, Labour and Conservative,

haven't dared look again at the numbers.

They haven't dared ask the question because they fear the consequences.

The amount different nations in the UK get is

determined by a formula dreamt up in Whitehall way back in the 1970s.

Because it was an issue then, too.

Last year, for every £100 the state spent on every Englishman,

it spent a much larger share, £119, on every Scot.

TV programmes may have changed,

but the size of the gap has stayed the same.

So why doesn't the Treasury do anything about it?

We haven't looked at how much Scotland gets,

Wales gets, England gets,

and probably we need to do so.

Why haven't we done so over the last 20 or 30 years?

Probably because governments

have been very frightened about opening up this tin,

and what would be a very complex calculation, particularly against

a background of independence movements, most notably in Scotland.

Couldn't you call that bribery?

We give you money and you won't vote for independence.

I don't think that they would necessarily call it bribery.

They might choose to do so.

I tell you one reason the Treasury aren't keen to re-open this.

It's you. They think you're going to make Scotland independent,

they think if they look at these figures that there'll be

a break of the union, and they don't want it to happen.

I was brought up to believe there were three great lies in life.

One is, "The cheque's in the post."

The second is, "Darling, I'll respect you in the morning."

And the third is, "I'm from the London Treasury

"and I want to help Scotland."

We in Scotland are prepared to raise all our own money

and govern all our own spending with no subsidies from anyone

as long as people in England do exactly the same thing.

And if England raises its own money,

governs its own spending, Scotland does the same, then that is

the essence of a happy relationship on these islands forever and a day.

Westminster politicians may have shied away from some tough choices.

But the ones they have made are revealing something else -

how dependent some parts of Britain have become in recent years on

public spending - and how much they stand to lose now it's being cut.

My next stop is Durham.

PIPES PLAY

BRASS BAND PLAYS

I've come here along with 50,000 other people

for one of the North East's great traditions.

The wonderful sights and sounds of the annual Durham Miners' Gala

are meant to be much more than merely a celebration

of Britain's industrial past, they're meant to be a campaign,

a live one, for political causes.

And yet what they remind us is how few industrial jobs are left

here in the North East, how many depend directly on public spending.

Take the Durham Miners' Association Brass Band.

There are still a few ex-miners in it,

but more than half are public sector workers.

From Kevin, who works in environmental health,

to Julie, who's in further education.

Since the mines closed in the '80s, governments,

first Tory then Labour,

tried to compensate by creating public sector jobs.

It did work for a while.

But it's left some people here exposed now that spending is being cut.

Ian Lavery used to be a miner.

He's now a local MP, his constituency covers Morpeth,

the town with more public sector workers than anywhere else in Britain.

In my constituency we've got lots and lots,

more than 50% work in the public sector, and, of course,

we've got more than 50% of women

working in the public sector as well.

You're saying more than half your constituents

work in the public sector.

You must wonder sometimes,

there can't be enough money being raised to pay for more than half

the people to get jobs that aren't being created through wealth creation.

These jobs are valued jobs, these are jobs are much needed,

and they've got to be paid for by the public purse.

-But who pays for that?

-The taxpayer.

Who pays for that?

Me, you, everybody else.

And who wants the public services? Me, you, and everybody else,

we want the good public services.

We need, to survive, we need good public services.

The problem is that

when the money runs out those public sector jobs go.

Unemployment here in the North East is already higher

and rising faster than anywhere else.

Politicians talk of re-balancing the economy.

It's easily said, but for the Durham Miners' Association Band,

you're talking about their livelihoods.

It's not really our fault that those heavy industries have gone.

We go where the jobs are and now the jobs are in the public sector.

And for some reason we're being told now that we're parasites,

we're bleeding the country dry, the spin goes against us.

I don't really know why, but as far as we're concerned,

we just want a job to earn a living to raise our families.

For those who lived through the closure of the pits in the 1980s,

like one-time colliery worker Julie, painful memories are being stirred.

Does it feel like you're going through it all again,

you lost all these jobs in the '80s, didn't you?

Yes, exactly the same.

I mean, I now work in a further education college

and the cutbacks for funding mean that the budgets for next year

are going to be much less and as a result they've got to cut staff.

It feels...it's friend against friend going for the same job.

People and communities in Britain

have built their lives around politicians' decisions

to spend public money - no wonder cutting it hurts.

There is, of course, a fierce debate about the speed

and depth of spending cuts and the impact they're having

not just on people but on Britain's stuttering recovery.

The Government and the opposition may profoundly disagree about that,

but they agree that we just might need

to dig ourselves out of trouble.

You may well think that they spend your money pouring it

into great holes in the ground.

Well, you know what? You'd be right.

This, though, is no ordinary hole in the ground.

It is the largest construction site in Europe.

This is going to be the new Canary Wharf station

on London's biggest train set - Crossrail.

The cost to you? A mere £5 billion.

And that's just a fraction of the overall cost -

£14 billion.

So why spend huge sums on infrastructure, rail lines, roads, bridges,

at a time when so many in the public sector are losing their jobs?

One fervent believer in why infrastructure matters is

Crossrail's chairman, Terry Morgan.

We are on this extraordinary site,

that's where it will all happen soon, is it?

It does. Late in 2012,

we're going to see some tunnel boring machines come out through that circle

and will appear in this fantastic new station

called Canary Wharf.

Sometimes it's very difficult to explain to people,

what do you get for 14.8 billion?

You get eight stations like this,

you get 20 kilometres of two tubes the size you can see behind you.

You get an awful lot of new track, new jobs,

new trains, new stations, huge amount of investment that nobody can see.

But I could get nurses, teachers, schools, hospitals,

better public sector pensions.

Why do I want a bloody great hole in the ground?

Infrastructure investment is a long-term investment.

There's a role for schools, there's a role for hospitals.

It's a question of how you get the right balance about short-term decisions

and long-term decisions that says we've invested for the future.

In the last recession in the 1990s,

there were drastic cuts to infrastructure spending.

Now, on all sides, politicians want to avoid repeating that mistake.

It's so vital that you do keep up the pressure

for investment in infrastructure.

At its peak, there'll be 14,000 people employed in Crossrail.

We've got a Crossrail Academy being constructed

which will train many, many thousands of young people

in vital engineering skills.

These things generate employment and employment of all kinds.

Unless you invest in things that are going to deliver long-term growth,

you will pay a long-term price.

Few would disagree with that.

Investment spending is due to be much higher

than in the last recession,

but it's still going be to halved over the next five years.

Even whilst the Government protects big projects like Crossrail,

many smaller ones have been cancelled.

Whenever politicians run out of cash, it's mighty tempting for them

to stop spending on infrastructure for the future so they don't

have to cut the spending on people in the here and now.

And the reason's pretty obvious, if you think about it.

Whoever heard of a cancelled bridge writing to the paper to complain,

or a road that isn't being built calling a radio phone in?

You see, infrastructure may be important,

but it doesn't have a vote.

In this film, I've tried to reveal how all too often,

raw electoral politics can determine how they spend your money.

We've seen the impact that has on ever rising budgets,

for pensions and for health,

on where in Britain your money goes, and on how deficits happen.

Though the cuts have generated sound and fury,

they haven't made us ask the really big questions we now need to ask.

It would be nice to think, but probably naive, that come the next election

you could have a sensible discussion about these things.

If you want to have top class education,

which we need in the future, if you want a railway system that works,

if you want to make sure that there's care for your elderly parents,

then at some point, somewhere, it's going to have to be paid for.

We need a more honest debate,

because the spending pressures aren't going away.

Politicians need to take us seriously. They need to say to us,

we do an awful lot of things that you want us to do for you,

but those things are things that are costing more and more.

You're living longer, there's more that we can do with health care.

You want better and better education so we can compete in the world.

You want law and order that looks after you, that protects you.

You want a defence service that can do what you want us to do in the world.

Well, you've got to pay for it

and these things will get more expensive.

For years, politicians have offered us an impossible mix -

increased spending, but lower taxes at the same time.

It's a mix we voters tell them we want, it's a mix which

has helped to contribute to the sort of mess we're in today.

A more grown-up choice would be to say either you've got to do

more for yourselves, or you're going to have to pay the bill.

But, as we'll see next time, there's nothing politicians fear more

than telling us our taxes are going up.

The rich don't want to pay more.

I think taxes are totally voluntary for the very rich.

The rest of us feel we're taxed enough already.

I feel we haven't got any more to give.

Come on!

And when politicians try to find other ways to raise tax,

they face impossible odds.

If someone can think of a popular tax,

then they should phone up and let us know.

Next time on Your Money And How They Spend It, the trouble with tax.

Subtitles by Red Bee Media Ltd

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