Season's Greetings

Yes, the Autumn Statement comes but once a year. The Chancellor will deliver this year’s statement tomorrow, a day after his little helper, the Chief Secretary to the Treasury, published the government’s latest infrastructure plan.

The Autumn Statement is one of the two big financial announcements made to Parliament by the Chancellor. Traditionally, it focused on economic projections and departmental spending allocations, leaving taxation to the Budget. Increasingly since its advent, however, the Autumn Statement has become another opportunity for tax announcements. (Some things have not changed, though – unlike during the Budget, the Chancellor will be unable to indulge in a seasonal tipple during his speech.)

What early Christmas presents is the Chancellor likely to give out? According to press speculation, a number of politicians’ wishes from party conference season – free school meals, cancelling a planned rise in fuel duties and marriage tax breaks – could be granted. The Government has already announced new proposals on energy this week, and could announce a freeze on business rates or other help for small businesses.

But some departments may find themselves on the naughty list – The Guardian reports that a hole in the BIS budget could lead to cuts to student grants and science funding. And to deliver those party conference promises, some departments might face further spending cuts; the Institute for Fiscal Studies reports that free school meals, a tax break for some married couples and cancelling a planned increase in fuel duties would cost £2bn, which has to come from somewhere. After all the trimmings of last year’s Autumn Statement – with a 1% cut to departmental resource budgets in 2013/14 and 2% in 2014/15 – there is a question as to whether, departments with ringfenced budget lines like Health, Education and DfID aside, a similar amount could be carved out again this time round. As we pointed out last year, although those cuts may sound small, they could have a profound effect on departments already undergoing large cuts and big changes.

Money for any new announcements could come from cuts or tax increases. Or the Chancellor could decide to find the money from ‘underspends’ in departmental budgets – though as our latest Whitehall Monitor bulletin on departmental spending shows, once unwrapped, these aren’t always quite what they seem. Our bulletin looks at Resource DEL (Departmental Expenditure Limits) budgets only – the money a department is given for its running costs and to cover spending on government programmes and policies. It found that government departments have been successful in meeting planned spending reductions in their resource budgets for 2012/13, and in many cases have actually underspent against their targets. But looking at their targets beyond 2012/13 throws up three distinct patterns: departments that have faced consistent reductions; departments with protected budgets and real term increases; and departments with ‘undulating’ profiles. These ‘undulating’ departments (like DWP, DfT and DECC) were given increased spending allocations for 2013/14 before apparently steep cuts in 2014/15 and after. But in reality, this pattern is driven more by underspends in 2012/13 than spending increases in 2013/14.

And in a slight nod to the pantomime season, the answer to the question ‘are all these underspends “true savings”?’ is ‘oh no they aren’t’. For example, a large part of the difference between the allocation for DWP in their ‘main estimates’ (the figures they present to Parliament to receive the money they need for their agreed spending programme) and ‘supplementary estimates’ (which supplement the main estimates and may seek additional or reallocate existing resources) for 2012/13 relates to slower than expected implementation of the Work Programme since they made fewer payments by performance to suppliers than expected. Movement between budget lines also accounts for some of the ‘underspend’ – in DWP’s case, from Resource DEL to Capital DEL (spending that adds to the department’s fixed assets). DfT’s underspend combines a similar movement with project slippage and an initial overestimation of costs, as well as efficiency and savings.

The short conclusion from all of this is that government finances are complicated. The slightly longer conclusion is that to pay for some political pledges, the Autumn Statement will need to find some money from somewhere. Some of that will come from cuts and taxes and some of that will come from previous underspends. But not all of those previous underspends are down to savings and efficiency – some ‘underspends’ are in fact down to slower implementation or changed spending profiles for particular policies and projects, or movement between different budget lines.

Working out where such large amounts of money are parcelled up and given out would be easier if more information were published, and published on a timelier basis. For instance, the supplementary estimate memorandum for DECC, despite being an important public finance document, is not published online. Nor, yet, are DWP’s annual report and accounts for 2012/13. That might not be the most exciting Christmas wish, but it’s something that could help the public understand what actually happens to public money and is very much in the gift of government.