Chancellor George Osbourne makes further budget cuts: part 2

Following on from yesterday’s blog, part two covers departments where decisions have been made and how these decisions will affect our Public Services.

Health – protected from cuts
Annual budget: £116.6bn
Increase since 2010: 7.3%

Where 2010-2015 increases went: Health is a protected department. The government pledged to increase funding for the NHS in England, in real terms, (which means the amount spent on it went up by more than the rate of inflation) every year between 2011 and 2015. The Department of Health says it met that pledge through a 5% real terms increase. At the same time the NHS has had to find billions in efficiency savings and the Department of Health was expected to save £200m itself in 2015-6.

What’s next: NHS England boss Simon Stevens has warned the health service needs £8bn in extra annual funding, on top of what it receives, to meet growing demands on it by 2020. Ministers have pledged to meet that in full and, although the budget has yet to be announced, another real-terms increase has been guaranteed.

International development – protected from cuts
Annual Budget: £10bn
Increase since 2010: 24.1%

Where 2010-2015 increases went: Justine Greening’s international development department is protected from cuts and has seen its budget increase year-on-year, with most of the extra cash going to aid agencies rather than projects run by the UK government.

What’s next: The government will continue spending 0.7% of GDP on overseas aid although critics will be keeping an eye out for expenditure in other departments being re-categorised as international aid.

Work and Pensions – budget cuts agreed
Annual budget: £6.5bn
Separate welfare and pensions budget: £216bn
Cuts since 2010: 35.8%

Where the axe fell 2010-2015: More than £21bn has been cut from the welfare budget. Controversial cuts to housing benefit, dubbed the “bedroom tax” by critics, and a £26,000 cap on the total amount households can claim affected relatively small numbers of people. The biggest savings were achieved through cash freezes to child benefit and changes to how working age benefits are increased each year, as well as a 1% limit on most benefit rises.

What’s next: The Treasury is seeking a further £12bn in cuts to welfare spending by 2018/19. It has now reached a deal with the Treasury, although the details have yet to be announced. Work and Pensions Secretary Iain Duncan Smith appears to have seen off an attempt by the Treasury to make his department swallow the £4bn cost of measures to ease the impact of cuts to tax credits. This would have been achieved by cutting work incentives offered through the new Universal Credit. Mr Duncan Smith is reported to have threatened to resign over the issue but sources say the dispute is now over.

Department for Energy and Climate Change – budget cut agreed
Annual budget: £3.9bn
Budget increase since 2010: 14.3%

Where 2010-2015 increases went: DECC is not a protected department so you would expect its budget to have been slashed. But 2013 measures to ease energy bill increases by adjusting green levies meant it went up overall during the last Parliament. There were also big investments in carbon capture and storage technology.

What’s next: DECC will not get such an easy ride this time. It has reached an agreement with the Treasury, expected to be around 21%, although the full details have yet to be announced. The biggest chunk of its budget goes on nuclear decommissioning – and that can’t be touched. So it can expect cuts of 46% in its other activities in 2017/18 before spending increases again, according analysis by the Green Alliance. Remaining budgets for green subsidies are likely to be in the firing line. It has already begun a job cuts programme, according to the Financial Times.

Cabinet Office – budget cut agreed
Annual budget: £2.8bn
Budget increase since 2010: 4.9%

Where 2010-2015 increases went: The Cabinet Office was hit with a 33% core budget cut in the 2010 spending review, which it achieved through efficiency savings and a freeze on Royal Household spending. But the vast majority of its budget is taken up by the Security and Intelligence agencies, which have seen their budgets increase significantly in recent years.

What’s next: The Cabinet Office is something of a special case as it covers so many different functions across the whole of government, including driving through efficiency savings. It has now reached a spending deal with the Treasury. The details have yet to be revealed but Chancellor George Osborne has promised an extra £1.9bn a year for cyber security.

Environment, Food and Rural Affairs – budget cut agreed
Annual budget: £2.1bn
Cuts since 2010: 29.9%

Where the axe fell 2010-2015: Defra was one of the biggest casualties of the 2010 spending review. The 2013 floods did change the picture slightly, with billions in extra capital investment in flood defences promised. But the department was still asked for find an extra £83m in savings in 2015-6.

What’s next: Defra was one of the first departments to “settle” its funding with the Treasury. It has agreed to a 30% cut in day-to-day spending over the next four years. But its capital funding has yet to be announced, with the Treasury pledging to back flood protection.

Transport – budget cut agreed
Annual budget: £8.6bn
Cuts since 2010: 13.4%

Where the axe fell 2010-2015: Had to make cuts to running costs but big capital projects such as Crossrail and HS2 got the go-ahead. It was asked to find an extra £545m in savings in 2015-6, the largest of any single department – the bulk coming from selling off land adjacent to King’s Cross station.

What’s next: Transport Secretary Patrick McLoughlin, pictured above, settled early with the Treasury, accepting a 30% cut to his department’s day-to-day budget by 2020. But, again, capital spending is not included and the government says it wants to spend £100bn on infrastructure upgrades over the period.

Department of Communities and Local Government – budget cut agreed
Annual budget: £12.8bn
Cuts since 2010: 51%

Where the axe fell 2010-2015: DCLG took the biggest hit of any department, in percentage terms, in the last Parliament. The communities-focused part of its budget was cut in half and direct grants to local government fell by 27% in real terms between 2011 and 2015. A further £230m in savings was sought in 2015-6 although the department said this did not affect any existing programs.

What’s next: Communities Secretary Greg Clark, pictured above, was one of the first cabinet ministers to settle with the Treasury, accepting a 30% budget cut over four years. But this figure does not include the revenue grant for town halls, which is determined on an annual basis.

Treasury – budget cut agreed
Cuts since 2010: 29.9%

Where the axe fell 2010-2015: Capital spending was cut by 30% and savings made in other areas.

What’s next: Not surprisingly, given it is his department, George Osborne has already reached a deal with the Treasury to cut 30% from its resource spending. But the Treasury also oversees HM Revenue and Customs, which means it will have to find a way of saving up to £4bn to reduce the impact of tax credit cuts after the House of Lords rejected them. HMRC has reached an agreement with the Treasury on a cuts programme, which will see savings made through the “digitisation” of the tax system and the closure of “low value” programmes.

Scotland – budget cut agreed
Annual budget: £28.6bn

Cuts since 2010: 8.5%
The majority of public spending in Scotland, Wales and Northern Ireland is calculated using the Barnett formula – a system of grants allocated according to the population size of each nation and which powers are devolved to them. When the UK government increases or decreases funding for departments such as health and education in England, the Barnett formula is used to decide how much devolved governments will receive.

Where the axe fell 2010-2015: The Scottish Barnett block grant fell £1bn in cash terms between 2009/10 and 2011/12, from £29.7bn to £28.7bn. The grant is currently just below 2011/12 levels, in cash terms.

What’s next: The devolved administrations have reached a deal with the Treasury. The details have yet to be revealed but they are part of a package of cuts to seven departments that average 21% in total by 2020. The Scottish government has promised to protect health spending which could force ministers to make deeper cuts in other areas. But it will have more scope to raise additional revenue through the partial devolution of income tax and VAT, and the whole of Air Passenger Duty. The next block grant will be cut to compensate the UK government for tax revenues lost through the devolution of Stamp Duty land tax and landfill tax.

Wales – budget cut agreed
Annual budget: £14.4bn
Cuts since 2010: 13.4%

Where the axe fell 2010-2015: Welsh government finance minister Jane Hutt says £1.3bn has been “taken out of vital public services” over the past five years.

What’s next: Planned cash increases to NHS spending will be reflected in a funding boost for the NHS in Wales and this could offset other cuts. Non-devolved departmental spending in Wales will fall by approximately £260m by 2018-19: this is a reduction of 16% in real terms, according to an analysis by The Institute for Welsh Affairs.

Northern Ireland – budget cut agreed
Annual budget £10.7bn
Cuts since 2010: 8:8%

Where the axe fell: Stormont’s spending power was cut by more than £1bn, in real terms, between 2010 and 2015, although health and schools spending was protected.

What’s next: The Northern Ireland executive expects a continued real-term decline in funding levels, mirroring the UK-wide squeeze. The Northern Ireland Office has reached a spending agreement with the Treasury.

In conclusion….
So clearly there are a few more wrangles to be had before The whole spending review is settled. And of course, global events can always blow the best laid plans off course. But it is clear the settlements and the resulting spending plans will mean great change for public sector spending. A new public sector is likely to emerge in 2016, one that has a changed relationship with the public, possibly forever. Those working in the public sector and those relying on public services need to take note.

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