Today’s Spending Review was predominantly about departmental spending in the 2015-16 fiscal year. But what it actually tells us most about is how tough politics is about to become. While the Chancellor outlined cuts of £11.5bn today, around £21bn still needs to be found by 2018 to fill the black hole in the public finances.
With some departments now looking like they’ll be over a third smaller than in 2010, it is difficult to see how much more of this £21bn can come from departmental spending without depleting public services to levels that the general public will find unacceptable. Whichever party forms the next Government will have to look at tax rises and further welfare cuts to balance the books.
Health ringfence: an effective £36bn cut by 2018
Overview: The health budget remains ringfenced. A ‘pooled budget’ of £3.8bn has been set aside to integrate health and social care commissioning between the NHS and local authorities.
SMF Director Ian Mulheirn said:
“Preserving the health ringfence has imposed deep cuts on already struggling public services. But given the scale of savings needed, removing it was never an option: the need for the NHS to keep up with the latest medical advances means that health spending must grow at around 4% per year in real terms if it is to meet patients’ expectations. So a fifth year’s flat settlement for health will actually impose and unprecedented squeeze on the service. With another two years of negligible budget growth likely after the election, the NHS faces an effective cut of £36bn by 2018.
“By 2018 the public will want better health services than the NHS will be able to provide. The big question for British politics is whether those better services will be paid for through tax rises to restore the NHS, or private spending on healthcare by those who can afford it. That would signal the end of the NHS as we know it.”
Welfare cap: pensioner benefits in Osborne’s sights
Overview: The Chancellor announced his intention to cap elements of welfare spending from April 2015, which will include housing benefit, tax credits, disability living allowance and pensioner extras. Spending on state pensions will be excluded.
Ian Mulheirn said:
“While it sounds tough, the welfare cap is little more than a political device. Welfare cuts already in place mean that in the years ahead spending on working-age benefits will be flat. The real driver of growth in welfare spending over the next five years – pensions – are excluded from the cap, and the Government has successfully cut around £20bn from working age welfare with no cap at all.
“By including additional pensioner benefits in the cap, the Chancellor has indicated that he has the totemic Winter Fuel Allowance and other pensioner extras clearly in his sights after the election. Given the scale of cuts to come, he should be applauded for that.”
Upfront job search: a false economy
Overview: Future claimants of Jobseeker’s Allowance will have to wait seven days before making their claim. They will also be required to prepare for work and search for jobs right from the start of their claim.
Ian Mulheirn said:
“Proactive job-searching is a vital aspect of finding work, so asking people to search for a job from the start of their claim makes a great deal of sense. But other plans to make people’s lives on benefits more miserable are both socially and economically bad news. The idea of withholding benefits to unemployed people for seven days is a false economy. Making unemployment so uncomfortable that people have to take the first job that comes along results in poor job matches, lower wages, and higher job turnover. At a time when the country needs skilled workers in jobs that use those skills, this policy may save the Government £250 million, but it will damage workforce productivity and increase the ‘low-pay, no-pay’ cycle.
“Perhaps even more worryingly, this policy will risk pushing unemployed people into debt. From October people losing their jobs they will have to wait for up to a month to receive their Universal Credit – a move that will mean many families getting into debt to tide themselves over. The seven day rule looks set to make that situation worse.”
Capital spending: a non-announcement
Overview: A total of £50bn investment in infrastructure projects was re-announced for 2015, with further details to be set out by the Chief Secretary to the Treasury tomorrow.
Ian Mulheirn said:
“Despite the heavily-trailed hints of a significant boost to capital spending, the Spending Review contained nothing new. Public sector gross investment in 2015-16 is the same as that set out in this year’s Budget: £50.4 billion. What’s more, these previously announced capital spending rises are relatively small and won’t kick in until 2015, when the economy is forecast to have recovered, Osborne’s infrastructure boost will do little for growth – it should have been done on a much bigger scale two years ago”.