So far the Government has held its nerve and stuck to planned spending reductions and offered no major giveaways through spending. The problems for the consolidation have come through a lack of growth in the economy, resulting in lower than expected tax revenues.
However, what matters is not so much how quickly the Government has cut, but how sustainably it cuts and whether it maintains momentum. The Government’s financial statistics reveal relatively little about this but the underlying drivers of costs, such as headcount and wages, can help.
The Government’s commitment to ongoing spending cuts remains. Both coalition parties are committed to the same spending totals until well into the next parliament, with Labour under pressure to clarify its position. The disagreements, both between and within parties, are around the allocation of those spending cuts. These will not be resolved until after the next election. Watch for any signals that the current ring-fences will not continue after the election, or that new areas are being added.
A sizeable proportion of the public remain committed to austerity as well as politicians. If anything, attitudes are hardening. For example, the percentage of those who think that the Government is cutting spending too quickly has steadily declined from its level near 60% in early 2011 to 44% in May 2013.
While the public accepts the necessity of fiscal consolidation, it does not think that the Coalition is doing it fairly. The Chancellor’s speech will indicate where the political energy and planning have gone in preparing for the Spending Round. Will he use a lot of small measures to disguise the overall impact of cuts (a feature of his 2010 speech) or will he craft a careful strategy to balance the inevitable pain of cuts in a politically sustainable way?
Beyond Whitehall, it is not clear that spending decisions will reflect the Coalition’s commitment to decentralisation:
- How much money will be set aside to support localism – such as the Single Local Growth Fund formed in response to the Heseltine Review?
- How will the Government respond to the London Finance Commission recommendations for greater fiscal devolution to the capital?
The day after the Chancellor announces departmental spending allocations is the most important day for public spending, when the hard work of planning what to do within these limits starts for departments.
There will be tough decisions in coming parliaments. Departments need to start work now to identify the choices available, and the areas in which collaboration with other departments or agencies – or even other tiers of government – could allow greater savings to be made.