23 June 2010
The cuts that the Coalition Government will have to make to those departments whose budgets are not protected will be around 34% rather than the 25% that has previously been anticipated. The chancellor has indicated that education and defence will be protected from the full brunt of the cuts. This means other departments will have to find additional cuts amounting to over one-third of their budgets, new analysis by the Social market Foundation think tank shows.
With funding for the Departments of Health and International Development set to rise in real terms, and Defence and Education protected from the worst of the cuts in both England and the devolved administrations the Chancellor will be looking to cut around £43bn from the remaining £125bn of departmental spending - a 34.4% real terms cut.
Commenting Ian Mulheirn, Director of the SMF said:
"To cut one pound out of every three from the Department for Business, Innovation and Skills, Home Office and Department for Work and Pensions is a huge ask. These cuts are equivalent to the entire running costs of the prisons and courts; more than half spending the police; and the entire pay bill for Jobcentre Plus. It is very questionable whether cuts of this size can really be found.
To make the deficit reduction plan feasible, it seems likely the Chancellor will be back with more tax rises and cuts to benefits."
Details of the new analysis:
Overall Government spending on services is £334.8 billion.
The Emergency Budget on 23 June announced real terms spending cuts of between £99-83bn.
The Government has already announced benefit reductions, saving £11bn and cuts to capital expenditure of £20bn. Which leaves £52bn of new cuts to be found.
However not all departments will have their spending cut. Health and DfID are to rise in real terms, and the chancellor has indicated that Defence and Education will be protected from the worst (not increasing the spending at defence and education will save around £9bn over four years assuming inflation of 2.5%)
Once the money for the Departments of Health, International Development, Defence and Education are removed the Coalition Government will be seeking to find £43bn of cuts from remaining Government spending of around £150bn.
Assuming that devolved administrations' budgets are cut in line with the ring-fences of education and health (which comprise about half of their budgets), cuts can only be made to half of the devolved administrations' budgets of £49bn.
Once that £24½ billion is deducted from overall spending the Coalition is needing to find about £43bn from the remaining £125bn of departmental spending. A 34.4% real terms cut.
Implications of a 34% cut:
• Ministry of Justice: total budget is 9.6bn of which 34% is the entire prison service budget and operating costs of the courts service
• BIS: total budget of 19.2bn of which 34% is almost the entire funding for higher education
• Home office: total budget of 9.5bn, of which 34% would involve more than halving central government spending on the police force
• Local government grants: £25.5bn, of which 34% would involve cutting £8.8bn from local services, such as social service, rubbish collection, street lighting
• Department for Work and Pensions: total budget of £9.1bn, of which 34% cut would be equivalent to the entire pay bill for DWP and Jobcentre Plus.
The SMF published a new report on Friday 11 June called Axing and Taxing - How to Cut the Deficit.
The report presents a package of cuts to fill the £74bn permanent deficit in the public finances caused by the recession, by 2015-16, with some 40% tax rises (£27.8bn) and some 60% cuts (£41.8bn) and £5bn from pro-growth policies. (The Chancellor announced today that the Government's tax/cuts split to fill the deficit would be 23% tax rises and 77% cuts.)
The full report can be viewed here: http://www.smf.co.uk/axing-and-taxing-how-to-cut-the-deficit.html
The report argues that progressive cuts mean protecting the least well off rather than protecting popular universal benefits.
The report presents a package of spending cuts and tax rises to fill the £74bn hole in the public finances by 2016, including an end to child tax credits for better-off families, the imposition of VAT on books and newspapers, tightened rules on housing and disability benefits, and charging better off patients for visits to their GP.
Before the election the Conservative Party argued for some £57bn of spending cuts and the Liberal Democrats £51bn.
The Social Market Foundation is a leading UK think tank, developing innovative ideas across a broad range of economic and social policy. It champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach.