Public services: the axe comes soon
Carl Emmerson
© Institute for Fiscal Studies
Public spending: summary
• Budget added to departmental spending in 2010–11
– increased spending
p
g on higher
g
education and roads
• Over four y
years from April
p 2011:
– little change since Pre-Budget Report
– additional spending
p
g in 2010–11 slightly
g y increases cuts thereafter
– current policies imply deep cuts to spending on public services
• Announced real cuts to public sector pay and axing of some lower
value spending will help
– additional contribution of efficiency savings less clear
© Institute for Fiscal Studies
Growth in components of spending: 2011–12 to 2014–15
Total Managed Expenditure
00
0.0
Of which:
Debt interest
12.7
Social security
1.1
Other AME
3.1
Departmental Expenditure Limits -3.1
-5
0
5
10
Average annual percentage real increase
© Institute for Fiscal Studies
Source: IFS calculations based on figures from HM Treasury
15
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
201
14-15
201
13-14
201
12-13
201
11-12
201
10-11
200
09-10
200
08-09
200
07-08
200
06-07
200
05-06
200
04-05
200
03-04
200
02-03
200
01-02
200
00-01
199
99-00
199
98-99
Pe
ercentage
e of natio
onal incom
me
Public services spending: back down the hill
30
27
24
21
18
15
But some areas are to be ‘protected’...
• Overseas Development Assistance
– meet 2013 target
g of spending
p
g 0.7% of Gross National Income
In 2011–12 and 2012–13:
• Health
– real freeze in “front-line” NHS spending
• Education
– 0.7% real increase in “front-line” schools spending
– 0.9%
0 9% real increase in “front-line”
front line spending on 16
16-19
19 participation
– real freeze in “front-line” spending on Sure Start
• Treasury still haven
haven’tt provided costings for these commitments
© Institute for Fiscal Studies
Cumulative spending changes to 2012–13
Cumu
ulative p
percentage change
5
+1.6%
0
-5
–6.6%
-10
-15
-20
-25
25
2010–11
© Institute for Fiscal Studies
DELs
–14.1%
'Protected' DELs
'U
'Unprotected'
d' DELs
DEL
2011–12
2012–13
Source: IFS calculations based on figures from HM Treasury
2013–14
2014–15
Cumulative spending changes to 2014–15?
Cumu
ulative p
percentage change
5
0
-5
-10
-15
-20
-25
25
2010–11
© Institute for Fiscal Studies
–11.9%
11 9%
DELs
'Protected' DELs
'U
'Unprotected'
d' DELs
DEL
2011–12
2012–13
Source: IFS calculations based on figures from HM Treasury
2013–14
2014–15
Cumulative spending changes to 2014–15?
Cumu
ulative p
percentage change
5
0
–3.6%
-5
-10
-15
-20
-25
25
2010–11
© Institute for Fiscal Studies
–11.9%
11 9%
DELs
'Protected' DELs – "2yr protection"
'U
'Unprotected'
d' DELs
DEL – "2yr
"2 protection"
i "
2011–12
2012–13
Source: IFS calculations based on figures from HM Treasury
–19.5%
2013–14
2014–15
Cumulative spending changes to 2014–15?
Cumu
ulative p
percentage change
5
+2.9%
0
-5
-10
-15
-20
–11.9%
11 9%
DELs
'Protected' DELs – "2yr protection"
'Unprotected'
Unprotected DELs – "2yr
2yr protection"
protection
'Protected' DELs – "4yr protection"
'Unprotected' DELs – "4yr protection"
-25
25
2010–11
© Institute for Fiscal Studies
2011–12
2012–13
Source: IFS calculations based on figures from HM Treasury
2013–14
–25.4%
25 4%
2014–15
Claimed savings so far
• Cuts to DELs total £25bn by 2012–13 rising to £46bn by 2014–15
2012–13
13 Treasury estimates:
• By 2012
– 1% cap on public-sector pay to reduce spending by £3.4bn
– cuts to lower value spending
p
g worth £5bn
– cap on employer-pension contributions saves £1bn
– efficiency
y savings
g of £11bn
• Do these contribute to deficit reduction and has the financial crisis
led to them happening?
– lower public sector pay: yes and yes
– cuts to lower value spending: yes and quite possibly
– public sector pensions: yes and very doubtful
– efficiency saving: unclear in either case
© Institute for Fiscal Studies
Efficiency savings
• Treasury claims £11bn by 2012–13
• Had the financial crisis not happened what would have been
claimed over this period?
– targeted £21.5bn between 2004–05 and 2007–08 under Gershon
Review and claims achieved £26.5bn
– targeted £30bn between 2007–08 and 2010–11 under 2007 CSR and
increased this to £35bn under Operational Efficiency Programme
• Will efficiency savings be delivered as expected?
– £26
£26.5bn:
5bn: NAO audit half-way through suggested: 25% did not
adequately demonstrate true efficiencies, another 50% questionable
– £35bn: less than one-third (£10.8bn) found by Autumn 2009, another
£24bn needed before April 2011
© Institute for Fiscal Studies
Deficit reduction and efficiency savings
• Without spending limits being set not possible to say what the
contribution of each department is to the deficit reduction
• Genuine efficiency savings within ‘protected’ budgets boost
service quality in those areas rather than reduce borrowing
© Institute for Fiscal Studies
Efficiency savings (2012–13)
Health
CLG Local Government
Children Schools and Families
D f
Defence
Work and Pensions
Home Office: Arm's length
H
Home
Offi
Office: P
Police
li
Justice
Business, Innovation and Skills
CLG Communities
Environment, Food and Rural Affairs
International Development
Transport
Culture, Media and Sport
Energy and Climate Change
Cabinet Office
44
4.4
2.1
1.1
0.7
07
0.4
0.4
03
0.3
0.3
0.3
0.2
0.2
0.2
0.1
0.1
0.0
0.0
0
© Institute for Fiscal Studies
'Unprotected'
'
'Protected'
d'
Total across these
departments £10.7bn,
split 50/50 ‘protected’ and
‘unprotected’
1
2
£ billion
billi
Source: Various departmental websites; IFS calculations
3
4
5
Efficiency savings (2012–13)
CLG Local Government
Home Office
o e t, Food
ood and
a d Rural
u a Affairs
a s
Environment,
Health
Work and Pensions
Justice
Culture, Media and Sport
International Development
Children Schools and Families
CLG Communities
Defence
Business, Innovation and Skills
Cabinet Office
Energy and Climate Change
Transport
8.0%
6.7%
6.3%
4.0%
3.7%
3.6%
2.8%
1.9%
1.9%
1.9%
1.7%
1 4%
1.4%
1.0%
0.9%
0 6%
0.6%
'Unprotected'
p
'Protected'
0.0%
2.0%
4.0%
6.0%
8.0%
Percentage of 2010–11 DEL
© Institute for Fiscal Studies
Source: Various departmental websites; IFS calculations
10.0%
Public spending: summary
• Little change since PBR; over four years from April 2011
– total p
public spending
p
g broadly
y flat after economy-wide
y
inflation
– debt interest and, under current policies, welfare benefits and other
annually managed expenditure to continue rising
– implies deep cuts for public service spending
– and much deeper cuts elsewhere if large areas such as the NHS and
schools exempted from cuts
• Announced real cuts to public sector pay and axing of some lower
value spending will help
– cuts to employer-contributions to public-service pensions
Government policy before the crisis began
– additional contribution of efficiency savings less clear
• Significant welfare spending cuts or further tax rises could
alleviate the pain
© Institute for Fiscal Studies
Post Budget briefing
Institute for Fiscal Studies, 25th March 2010
www.ifs.org.uk
© Institute for Fiscal Studies