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What can we learn from yesterday’s Treasury announcement about the coming Spending Review?

Julian McCrae thinks the numbers in the announcement may not be that comforting for the fiscal hawks.

Julian McCrae thinks the numbers in the announcement may not be that comforting for the fiscal hawks.

Ah, the joys of a press release from the Treasury. Some of the finest minds in Whitehall setting out to make the reader think one thing, when the actual words say another! We had a classic of the genre yesterday. The centrepiece was a table purporting to show “savings” numbers, which summed together all kinds of odds and sods. Possibly the only thing you need to know about this table is that if any company thought the things in there were genuine savings, it would go bankrupt pretty quickly. But there are some things I think you should read into yesterday’s announcement. In time honoured tradition, the Treasury has undertaken a raid on departments’ supposedly fixed budgets. But the raid itself actually appears to have been relatively unsuccessful, at least from the point of view of the spending control challenge the Government has set itself. Selling off assets (e.g. Royal Mail, land around Kings Cross) and moving the timing of expenditures (e.g. in Justice and Defence) does not do anything to alter the underlying cost base of government. A lot of the rest appears to be departments signing up early to underspends, but these appear to be around the level that the Office for Budget Responsibility (OBR) already expects will happen. Crucially the OBR has factored the expected underspends into the public finance numbers, so saying you’re going to achieve them does not get you any further towards the Government’s goals. Of course, it also looks like there have been some real victims of this raid. Public health, always a soft target, appears to have been one. Defra and BIS may also have suffered some real pain. At the other end of the scale, it’s noticeable how little of the money has come out of the Home Office – a quarter of one percent – by far the lowest number for the unprotected departments. This comes as the Home Office’s headcount (which is mainly people running our immigration and border control services) has been consistently creeping up over the last few years, reversing many of the reductions made early in the last parliament. This looks ominous for the Treasury – could it be that, with a long serving Home Secretary, the Treasury does not have the political clout to impose its will on this department? We’ll see what happens next in the spending review. But the task the Government has set itself cannot be achieved by wheezes, hitting soft targets and avoiding the tough political nuts. Rather it needs serious reforms backed by implementable plans, and a strengthened Whitehall with the skills to make them happen.
Cameron government
HM Treasury
Institute for Government

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