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Five things to watch for in tomorrow’s Spending Review

Julian McCrae looks at some of the things you should watch for.

George Osborne will be presenting his third Spending Review tomorrow, setting out what will happen to public spending for the next four years. Julian McCrae looks at some of the things you should watch for, to see what’s actually happened and whether the Government can deliver on its promises.

The initial media reactions to spending reviews and budgets are seldom that informative. Just look at the immediate coverage of the Chancellor’s last budgetary outing: that supposed triumph unwound as many people, including his own backbench, realised what it implied for those on tax credits. So here are five ways to figure out what the Chancellor has actually announced: 1. For the big picture, wait for the OBR rather than rely on the Chancellor’s speech. The graphic shows how the combination of manifesto commitments, the election campaign, pressure from backbenchers and his own budget decisions have left the Chancellor looking for a lot of savings from a small number of places. The Resolution Foundation thinks that, to make his numbers add up, the Chancellor needs to take 30% on average out of things like policing, prisons and care for the elderly. The Chancellor may follow through on this. Or he may not. Don’t rely on the Chancellor’s speech setting out clearly what he’s doing. Wait instead for the Office for Budget Responsibility (OBR) press conference following the Chancellor’s speech, when Robert Chote will set out exactly how the sums add up.
2. Ignore any claims about percentage reductions (or increases) in department’s spending. Most people think the percentages announced by the Chancellor in recent weeks show how future spending will change compared to what departments will spend in 2015/16. They don’t show this – instead they are comparisons to the Treasury’s own Spending Review “baseline”. Unfortunately this baseline can be adjusted to make sure that the announced percentage changes tell a better political story. To make accurate assessments of how much departments have lost or won, wait until the actual spending numbers, in hard billions of pounds, are published. 3. Don’t assume because spending is falling that the state is shrinking Building on what has happened from visa fees to court charges, we should expect more creative use of charges to raise revenue. The Chancellor is also a fan of “guarantees” to fund activity – starting with subsidised mortgages guaranteed by the Government (the Help to Buy scheme), and most recently guarantees for nuclear power stations. And watch for expansions in regulation, like the creation of the National Living Wage in the last Budget. The Government is clearly reshaping the state, rather than just contracting it. It may take a few days to get the full details on this. 4. Don’t rush to judgement on the effects of cuts on frontline services. In recent weeks, advocates of different public services have been making dire predictions about what will happen if they are cut again. The Treasury likes to point out that, despite similar dire claims in 2010, public perceptions of service quality have held up remarkably well. Watch the reaction of leading independent commentators, such as The King’s Fund on the NHS; or those likely to be closely informed by insiders, such as Conservative backbench MPs on defence. Their reactions will tell you a lot more than the headline messages in the speech or the campaigning that preceded it. 5. Expect the Chancellor to say reform and increased efficiency will take the strain. Our recent publication, Managing with Less, questions whether the Government is actually capable of implementing the changes dictated by the Chancellor. This will not be immediately clear when he sits down following his speech. But over the next month or so, either many key issues will be clarified or it will be obvious that Whitehall is continuing its traditional “muddle through” approach. The latter will not be sufficient to achieve what the Chancellor wants – that the state “does more with less”. So, if you can bear the wait, hold on until the New Year when the Institute will provide an update on the Government’s response to the questions we have raised.
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