Using the broadest measure, Total Management Expenditure – which captures all areas of public spending, the Budget projects an average spending increase of 1.7% per annum in the five years to 2015/16. Should inflation remain at around the 2% level over the next five years, that would imply that government spending in aggregate is likely to be broadly flat in real terms. While that represents a change from the very significant increases seen over the last decade, it points to a milder drag on growth than some of the more lurid headlines about the spending review have been suggesting. On the detail for individual spending areas, we will learn more next week following the public spending review that has been going on over the summer. And that will hopefully help to remove some of the current uncertainty around future public spending which has been affecting business and consumer confidence in the UK recently. A second point to note about the impact of the government’s deficit reduction plan is that all previous recoveries in the UK economy – in the late 1970s and in the 1980s and 1990s – have taken place against a background of fiscal austerity and public spending restraint. It is  6  BIS Review 134/2010  true that the level of public borrowing has now reached a higher level than in previous downturns – peaking at 11% of GDP, compared to just under 8% of GDP in the early 1990s and 5% in the early 1980s.
8  The trigger for statutory resolution would be, broadly, that the conditions for the group being authorised as a bank or dealer were no longer met and there was no reasonable prospect of repair. It should be underlined that what is described here is nothing to do with so-called ‘contractual bailin’, which has been a source of confusing distraction over the past year or so. ‘Contractual bailin’ typically refers to bonds that convert into equity or write down under a trigger establishes purely in the contract documentation. But if the trigger is the firm’s capital ratio dipping below a high threshold, the bond is in fact for recovery not for handling abject distress. If, at the other end of the spectrum, the trigger is falling below a low capital ratio, there can be no assurance that the firm would survive in the markets long enough for the bond to be triggered before the firm had to go into statutory resolution. And if the suggestion were that the contractual trigger should give the regulators discretion, most Resolution Authorities would want to avoid writing down or converting bonds outside the statutory resolution process, since that provides protections for creditors, and gives the RA protections and powers for the achievement of a clear statutory objective established by the legislature. Bailin is not about a specific type of bond – a so-called ‘bailin bond’ – but about the application of a statutory resolution power to bonds of any kind within a statutory resolution.