“We shall squeeze ... until the pips
squeak”
Gemma Tetlow
Post-Spending Round Briefing, 27 June 2013
© Institute for Fiscal Studies
The outlook for total spending
£ billion (2013–14 prices)
800
Total public spending
AME
DEL
700
600
500
400
300
200
100
© Institute for Fiscal Studies
Note: DEL and AME figures from 2013–14 adjusted for changes for local government
funding for Business Rates Retention and Council Tax Benefit localisation.
2017–18
2016–17
2015–16
2014–15
2013–14
2012–13
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–00
1998–99
0
Overview of spending plans for 2015–16
• Reallocation from capital AME to capital DEL
– “Financial transaction”
– Decreases AME and increases DEL by £3 billion
– Reduces the apparent cut to DEL compared to what was suggested in
March
• Average DEL cut of 2.1% in real terms across departments in
2015–16
– On top of 8.3% average cut between 2010–11 and 2014–15
– Implies 10.3% average cumulative cut over five years
• Pain has not been equally shared
– Capital spending increased while current spending cut (unlike SR2010)
– Departmental priorities largely the same as in SR 2010
– Some departments set to be cut by more than a third over five years
© Institute for Fiscal Studies
Additional cuts averaging 2.1% announced
yesterday for 2015–16...
International Development
Transport
NHS (Health)
Home Office
Education
Energy and Climate Change
Defence
Total DEL
Business, Innovation and Skills
Justice
Foreign and Commonwealth Office
Environment, Food and Rural Affairs
CLG Local Government
Culture, Media and Sport
Work and Pensions
CLG Communities
-80
5.9
1.4
0.1
-0.9
-1.1
-1.8
-2.1
-2.1
-3.0
-8.7
-9.3
-10.7
-11.5
-15.8
-21.2
-29.6
-60
-40
-20
0
20
Real budget increase 2014–15 to 2015–16
© Institute for Fiscal Studies
Note: Figures show cumulative change in total DEL after economy-wide inflation.
40
Come on top of cumulative cut to DEL averaging
8.3% over SR2010...
International Development
Transport
NHS (Health)
Home Office
Education
Energy and Climate Change
Defence
Total DEL
Business, Innovation and Skills
Justice
Foreign and Commonwealth Office
Environment, Food and Rural Affairs
CLG Local Government
Culture, Media and Sport
Work and Pensions
CLG Communities
-80
28.0
-1.1
4.1
-23.5
-7.4
-3.1
-7.0
-8.3
-23.6
-27.8
-50.4
-25.6
-26.5
-34.7
-21.7
-44.0
-60
-40
-20
0
20
Real budget increase 2010–11 to 2014–15
© Institute for Fiscal Studies
Note: Figures show cumulative change in total DEL after economy-wide inflation.
40
The art of obfuscation
• Figures for Departmental Expenditure Limits published yesterday
for 2014–15 differ quite significantly from figures published in
Budget 2013 for some departments
1. Change in where some grants sit
– Police grant transferred from Local Government to Home Office (£3
billion)
– Learning disabilities and health grant moved from NHS to Local
Government (£1.4 billion)
– Other transfers occurred from Education and Transport to Local
Government
2. Localisation of council tax benefit now incorporated in DCLG
Local Government budget – moves £4.3 billion of spending
•
For now, the first point hampers a comparison of historic and
forecast departmental budgets
© Institute for Fiscal Studies
Estimated cumulative 5-year cut
International Development
Transport
NHS (Health)
Home Office
Education
Energy and Climate Change
Defence
Total DEL
Business, Innovation and Skills
Justice
Foreign and Commonwealth Office
Environment, Food and Rural Affairs
CLG Local Government
Culture, Media and Sport
Work and Pensions
CLG Communities
-80
35.5
0.3
4.2
-24.1
-8.4
-4.8
-8.9
-10.3
-25.9
-34.1
-55.1
-33.6
-35.0
-45.0
-38.3
-60.6
-60
-40
-20
0
20
Real budget increase 2010–11 to 2015–16
© Institute for Fiscal Studies
Note: Figures show cumulative change in total DEL after economy-wide inflation.
40
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Percentage of national income
Public Sector Net Investment
Average: 1.8%
3.5%
3.0%
Outturns
© Institute for Fiscal Studies
Average: 1.7%
4.0%
Forecasts
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Further cuts are expected beyond March 2016 (1)
• Total spending approximately frozen in real terms
– But AME spending rising, in the absence of further policy action
– Implies further cuts to DELs
• If no further tax increases or AME cuts announced
– Total DEL would have to be cut by 7.9% over two years
– If continue ‘protecting’ NHS, schools, ODA, unprotected areas would
have to be cut by 15.0%
– Implies cumulative cut to unprotected areas over 7 years of 32.9%
• If want to avoid any further DEL cuts
– Additional £25 billion of tax increases or AME cuts required
© Institute for Fiscal Studies
Beyond SR 2013: Trade off between DEL cuts and
other policy action
Tax increase or social security spending
cut, £ billion (2013–14 terms)
40
Total DEL
35
‘Unprotected DEL’
30
No real cuts to total DEL:
£25 billion policy action
25
20
15
10
Total DEL cut at same rate as over SR2010:
£10 billion policy action
5
0
No new tax rise or social security cuts:
7.9% total DEL cut
-5
-10
-15%
-10%
-5%
0%
Real change in departmental spending, 2015–16 to 2017–18
© Institute for Fiscal Studies
5%
Further cuts are expected beyond March 2016 (2)
• If no further tax increases or AME cuts announced
– Total DEL would have to be cut by 7.9% over two years
– If continue ‘protecting’ NHS, schools, ODA, unprotected areas would
have to be cut by 15.0%
– Implies cumulative cut to unprotected areas over 7 years of 32.9%
• If want to avoid any further DEL cuts
– Additional £25 billion of tax increases or AME cuts required
• If continue cutting DEL at same rate as between 2010–11 and
2015–16 (average 2.4% a year)
– Additional £10 billion of tax increases or AME cuts required
• Additional £3.7bn a year also has to be found from 2016–17 for
higher public sector employer National Insurance contributions
© Institute for Fiscal Studies
Conclusions
• Departmental spending cuts averaging 2.1% announced for 2015–
16
– Capital spending increased, while current spending cut
– Cuts unevenly spread, with priorities largely unchanged since SR 2010
– Some departments have fared noticeably better this time: Home
Office, Transport
• Cumulative cut over five years from 2010–11 now averages 10.3%
– 18.5% across unprotected areas
– Some departments will see cuts of more than a third: Justice,
Communities, DEFRA, Foreign Office
• Further cuts likely in 2016–17 and 2017–18
– If no further tax increases or AME cuts announced, total DEL would
have to be cut by 7.9% over two years
© Institute for Fiscal Studies