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09 Nov

UK government spending round

Posted by George Higson in Budget, George Osborne, UK public spending

Today the Chancellor, George Osborne, announced the results of the recent Spending Round for the financial year beginning April 2015 - just one month before the next General Election. In effect this sets the departmental budgets for the incoming government. Given that some department finances have been ring-fenced (healthcare, education and overseas aid), the burden of cuts on other departments is necessarily greater. Today’s £11.5bn reduction in current spending in 2015 is on top of the 33% cut in real spending already in the pipe-line. The Chancellor stated that ‘no area of spending can be totally immune and some services will be wound down entirely.’

The departments most affected are transport, local government, the Home Office and business and culture, with between 6% and 10% cuts, while defence has come off relatively unscathed. However, it is with local government and the environment that that the axe has fallen the most. Public sector workers will lose their automatically adjusted public sector pay (dubbed ‘progression pay’) during 2015, meaning that cuts in real wages and rising unemployment in the public sector (predicted by the Chancellor to increase by 144,000) will re-balance the economy in favour of the private sector – something the Chancellor is unlikely to shed any tears over. Other measures include forcing the unemployed to visit their job centre once a week instead of one a fortnight, requiring non-English speaking claimants to attend language classes or lose benefits, extending the Troubled Families programme, and putting in an extra £3bn into social housing.

In addition, the Chancellor announced that spending on capital projects will rise by £300bn by 2019 and will include the ‘largest programme of road building in 50 years’. There will be an extra £9bn of new capital projects in London and Crossrail 2 is to be given the go-ahead. The Chancellor also announced that the council tax freeze, due to come to an end next April, will be extended for the next two years, which he claimed would reduce average council tax bills by £100.

As previously noted the cause of Chancellor’s difficulty is that growth has been virtually non-existent since 2010, meaning that tax revenues are much weaker than expected, and spending on social protection much higher than expected. Given that the growth outlook remains bleak, despite talk of the UK economy ‘moving out of intensive care’, Mr Osborne is still asking for continued austerity until at least 2018.

As with the impact of the Autumn statement, spending cuts are inevitably likely to widen the income gap between rich and poor as the worse off are more likely to be affected by the  cuts. Although health and education have been ring fenced, the Local Government Association has warned the Chancellor that some authorities are close to financial collapse, with a number of councils finding it hard to meet their statutory requirements for a minimum level of service provision. Cutbacks may negatively impact the general quality of provision, with many agencies, including Cafcass (the organisation which provides services to children, families and the courts in England), expected to do more for less. The cutbacks coincide with a record number of local authority care applications in 2012 which continues to put Cafcass under pressure.  Anecdotal evidence indicates that in some cases personal interviews with parents have been replaced by telephone interviews so that Cafcass can squeeze a little more efficiency out of their resources.  In addition, Cafcass’s own research indicates that the use of ‘expensive’ expert witnesses has fallen from 92% of cases in 2009 to 70% in 2013 cases so far. This at a time when total applications to Cafcass have risen by 20% in the current year.

Without a return to substantial growth it is unlikely that today’s cuts mark the end of austerity. It is most likely that further severe cuts will be needed if a future government is to meet the target of re-balancing the UK's public finances by 2017. Indeed, most analysts believe that, whichever party wins the 2015 election, significant tax increases of between £8bn and £10bn will be needed to meet the public finance targets.  Meanwhile, local authorities and publicly funded agencies like Cafcass will continue to look for new ways to do more for less as the age of austerity sees little sign of coming to a close.

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