The Treasury has published detailed spending data on the first three quarters of the year as part of their quarterly OSCAR release, allowing us to examine the cost pressures within departments. While the Budget showed that some departments are already struggling to implement their spending plans, the Chancellor was clear that he expected more savings from the Department of Health, Ministry of Justice, the Home Office and Department for Transport.
These departments have been treated very differently by successive spending rounds – Health has been ring-fenced, Justice has been cut and the Home Office has seen cuts in some areas while others (such as policing) have been protected. But the latest Treasury numbers show that even some protected areas are straining to meet their spending plans.
The NHS is now reliant on a series of cash injections to keep it going. A major source of these cost pressures is the stretched budget of hospitals, with NHS trusts forecasting an end-of-year net deficit of around £2.3 billion. These financial pressures reflect a service that is under stress, with 9% of patients waiting longer than four hours in Accident and Emergency (A&E) over the quarter up to the end of December 2015 - the worst performance since 2003. These and other pressures mean that, in the first three quarters of the financial year, Health had already spent £1.7bn more than was implied by plans.
The fact that the Chancellor looked at this figure for the first three quarters of 2015/16, but only expects the end of year outturn to exceed plans by £1bn, suggests that he is expecting to have re-established some degree of control in the final quarter.
At Justice, the Chancellor’s budget numbers show he is expecting spending to come in at £0.5bn (8%) above his June plans. Detailed figures for the first three quarters show that spending pressures appear to be largely driven by the increasing cost of running prisons compared to the same period last year. This is a reversal of previous trends. Significant reductions have been made in prison budgets in the last five years, with the cost per prisoner falling by 15%.
But indicators such as the rising incidence of serious assaults against prison staff suggest the Prison service is under pressure. The National Offender Management Service (NOMS), which runs the prisons, spent £2.6bn in the first three quarters of 2015/16, compared to £2.4bn over the same period last year. If prisons reduced their budget in line with the department’s overall targeted reductions, spending should have been £2.1bn (a 12% cut). Despite finding savings in other parts of the department’s budget, the Chancellor had to scale back the planned 12% cut at the Ministry of Justice, which he reduced to 5% in the March Budget.
In last month’s Budget, the Chancellor said he expected the Home Office to spend £0.4bn more than originally planned. The detailed data for the first three quarters of the year suggested that the Home Office was broadly on track to meet its target of an 8% cut this year. This was achieved in part by spending less in some areas than over the first three quarters compared to last year: £175m less on visas and immigration, and £100m less at the National Crime Agency. The fact that the Chancellor still expects the Home Office budget for the whole year to come in ahead of plans may imply that there are new spending pressures at the department that we don’t know about yet. Or there may simply be timing effects that still have to come out in the wash.
The Chancellor was able to partially offset the extra costs in Health, Justice and the Home Office by spending less money on Transport than he had anticipated. These savings are largely driven by a £0.9bn decrease in the Transport for London grant in the first three quarters of this year. But the total impact of the Chancellor’s budget changes was to increase spending across government by £0.6bn in 2015/16 compared to his June plans.
The Chancellor now faces a situation in which departments are struggling to implement their spending plans even before the 2015 Spending Review comes into effect. The health and prisons services in particular appear to be under strain, with additional spending combined with increasing challenges in providing adequate service provision. As the IfG has previously argued, the spending review process was put at risk when it was not linked to credible plans for implementation. The recently published Single Departmental Plans reinforced this impression.