Getting real with Government spending

A key difference you always need to be aware of when politicians start talking budgets: increase, and 'real terms' increase.
Let's look at an example. If the Government says it's increasing spending on education by 2.5% you'd think that's a useful sum of money.
But what if inflation - the annual rise in general prices - is running at 3%?
It means that a 2.5% increase is actually a 0.5% cut in real terms because education costs are rising faster than spending.
This is what 'real terms' actually means - spending adjusted for the effects of inflation.
So, if a politician says that there has been a real terms increase in spending he or she means that the increase is higher than the rate of inflation.
The clever game they sometimes play is telling you that they are increasing spending by a certain percentage and then adding "and that is a real terms increase!"
So let's say that increase is 3.5%. Great, fine, useful wodge of money. But what if inflation is running at 3%?
It means that in real terms the increase is only 0.5%. Not so hot after all.
Now, those are only examples. As it happens, UK inflation is actually around 1% at the moment. So in theory you wouldn't have to splash much cash to achieve a real terms increase.
Unfortunately, Alistair Darling won't be splashing much cash at all. The cost of bailing out our battered economy means that only education, health and police are likely to see real terms increases.
In real terms - that's the natural sense of the phrase rather than the technical one - there just isn't the money for anything else.