Now for the hard part: Reviewing the Spending Round

1 July 2013

As the details emerge from the Chancellor’s Spending Round for 2015-16, it’s time to look at how his decisions stack up.

First, in our briefing note before the Chancellor’s speech we asked whether there be a lot of small ‘good news’ measures to disguise the overall impact, or whether he would craft a careful strategy which openly balances the inevitable pain in a politically sustainable way? While speaking of ‘tough choices’, the Chancellor preferred unsurprisingly to talk up the positives, with few details to flesh out the abstract ‘savings’. We heard about the £200 million (mn) for Troubled Families, more places on the National Citizen Service scheme for young people, and extra efficiency throughout government – but little about which programmes will stop or be cut back. The political energy and planning seems to have gone into relatively small bits of the overall picture – much of the coverage has been dominated by welfare changes, which only account for around £0.5 billion (bn) of £11.5 bn reductions. By talking about savings at an abstract level, the government risks not having a narrative about what this will inevitably mean when translated into changes which matter to people.

Next, what happened to the ring-fences? Those around health, schools, and international aid remained intact – with the exception of £2 bn from the NHS budget to help pay for social care. The effective ring-fence around welfare payments to current pensioners looks most vulnerable for the future. Withdrawing winter fuel payments for pensioners in warmer climes merely reverses the £30 mn cost imposed on the government by a recent European court decision, but it is a symbolic assault on a previously untouchable policy. Pensioner benefits – though not the state pension itself – are included in the new overall cap on welfare spending, suggesting the ring-fence has narrowed to the pension, not pensioner benefits.

Also significant was the addition of new tacit ring-fences around politically-sensitive parts of Defence and the Home Office, including the intelligence services. As for the military, there will be no more personnel reductions and the equipment budget will increase annually. The armed forces enjoyed extra sweeteners too, highlighting the political drivers behind these decisions: LIBOR fines will fund the Armed Forces Covenant in perpetuity, and armed forces personnel will continue to receive automatic pay progression which is being abolished for other public sector workers. The Shadow Chancellor did not seem to reject these priorities, suggesting some areas where ‘non-battle lines’ are being drawn and the debate moving elsewhere for 2015 manifestos.

The civil servants losing automatic pay progression won’t share the Chancellor’s judgement that it is ‘antiquated’ and ‘unfair’, but he gave few other clues about the changing state of Whitehall. The Chancellor acknowledged OBR estimates of a further 144,000 public sector job losses over the next year (36,000 a quarter until 2018, in fact) – and welcomed the fact that the Civil Service is now smaller than any time since 1945. But further discussion of how Whitehall is changing has been left until the forthcoming progress report on the Civil Service Reform Plan.

Another question we asked before the Spending Round was whether the government would stomach more radical decentralisation? The speech suggested some positives. The Chancellor committed £2 bn a year over the next parliament for the Single Local Growth Fund. This was much lower than the £49 bn over four years Lord Heseltine wanted, but is more than the £1.4 bn allocated to the regional growth fund between 2010-11 and 2013-14. Whether this is progress or dashed expectations depends on how optimistic you were earlier this week, but it is certainly better than nothing. The speech also mentioned more capital spending and an ‘additional financing power’ for the Mayor of London, a response to Boris’s London Finance Commission’s call for fiscal devolution. Details announced over coming weeks will reveal how radical these changes are.

Finally, we asked whether there was there a plan for the future? Now the hard work begins – turning numbers in a spreadsheet into tangible savings by 2015-16. Departments need to make the most of the post-speech hiatus in Treasury pressure to plan how to achieve this. With at least two more years of cuts to be allocated immediately after the next election, departments must invest now in understanding the choices they will be presenting to any incoming government. We now know the baseline from which those spending reductions will be made, and civil servants themselves know this challenge requires a new way of working, collaboratively looking for savings across, rather than simply within, departmental silos.

Last week the Chief Secretary to the Treasury committed the government to looking at one element of this, how we strengthen financial management capability in Whitehall. This is a good step forward for meeting the challenge not only of making the savings announced last week, but finding those pencilled in for the next Spending Review in 2015. We will be discussing this further at the Institute for Government’s forthcoming event – ‘Financial leadership at the centre of Whitehall’.

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