Commitment Issues: ring fencing, protected budgets and spending cuts

Despite five years of spending cuts, the Government deficit is yet to be eliminated.

If the plans in the Autumn Statement are followed through by the next Government, the cut to current (or day-to-day) departmental spending (including spending on public services) will amount to a real-terms cut of over 25% over the 10 year period since 2010.

All parties have some room to ease up on the cuts outlined in the Autumn Statement and still hit their deficit reduction targets. But any savings to come in the next Parliament will come on top of substantial cuts since 2010. As we set out in Commitment Issues, under the current Government, the ring-fence on health, education and international development meant that other, non-protected budgets had to take an average real terms cut of 22%, with some departments taking on even more than this. As Ed Balls’ speech today indicated, the practice of trying to make substantial cuts whilst exempting some areas of spending – or even allowing them to grow – is becoming increasingly untenable.

Yet, the main parties are already making spending commitments – including on the NHS, education, pensions, international aid and capital spending. Once debt repayments are accounted for, that means half of Government spending could already be off the table before the next Government’s Spending Review even begins.

Added to this, there are a number of areas where spending is actually expected to grow in real terms. These include spending on the state pension: the triple lock guarantee means that over time, spending will outpace earnings growth. It also includes international aid, which is set to rise with GDP. This means that savings are needed elsewhere just to stop total spending from growing.

The practice of protecting some areas over others has led to some odd choices since 2010. Whilst spending on the NHS and state pensions have been allowed to grow, spending on social care for older people has been cut – by 2013-14, the cut amounted to 11% in real terms. Whilst poverty rates for pensioners are now at record-low levels, pensioner-related benefits have been protected, whilst welfare payments for the working population have been cut. The amount spent on overseas aid seems to have become more important than what the money is used for.  Opportunities for efficiencies and improvements have been missed; and inter-linkages between different areas of Government spending have been ignored.

Now, with spending commitments piling up as we head into May’s election, it looks like the same mistakes are to be made again. It is inevitable that certain services and outcomes will need to be prioritised over others, but the next Government must start by working out what outcomes it wants to achieve, and then the implications for spending. It must clearly articulate the rationale underpinning these decisions, something the current Government has not done very well. In the next Spending Review, everything needs to start by being on the table.


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