Settling public spending

The Chancellor yesterday announced that seven departments have now agreed reductions in their spending levels for 2015-16.

Much of this spending will take place after the next General Election, widely expected to be in May 2015. It is normal for the outgoing government to leave in place a spending and tax plan or budget for the incoming government, even where as in 2010 it was highly likely they would lose. In 2015 the current government is not standing again as a Coalition government, so the new incoming government is free to change things if they wish.

Clearly there are good management reasons why this needs to be done. The country needs to have a budget for the first three months of 2015-16, the period of the old government, of the election and first weeks of the new government. As this remains an area of largely national competence for the UK,the new government in May 2015 is at liberty to change both the tax and the spending plans on taking up office.

Once the government has set its 2015-16 budget it is likely Conservative Ministers will say they would keep to that budget should they form a majority government. The pressure will then be on the two Eds for Labour to say what changes if any they would want to make to such a budget, as they will know the exact numbers broken down by department. Once the budget is agreed, there will be a standard to judge other budgets by, a centre for the debate over how much to spend and how much to tax.

It looks as if the government plans to keep the ring fence protection of the NHS in place. I think this is a sensible call, given the huge pressures on the NHS budget. Taking the NHS and the pension pledges together, that places more downward pressure on the remaining budgets, as over one third of public spending is protected. The protection afforded to Overseas Aid will become more contentious, local authority budgets will be under more pressure, and the government will need to consider for how much longer public sector pay can rise faster than private sector pay.

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15 Comments

  1. lifelogic
    Posted May 29, 2013 at 5:46 am | Permalink

    Perhaps if the NHS spending is to be protected, then they could finally start to provide proper care over the weekends. This so that they do not kill 88% more patients then as is reported today. One assumes this 88% for weekend operations and 44% for those on a Friday (as compared to those on a Monday) is considered to be a price worth paying by the NHS management.

    Their rate on a Monday is not that good in world terms either. Free at the point of use but 88% more chance of death as they are playing golf at the weekend it seems.

  2. Brian Tomkinson
    Posted May 29, 2013 at 6:57 am | Permalink

    The net debt figure when Osborne took over was £759.5 billion. In his first budget Osborne planned to increase it to £1350billion by tax year ending 2014-15. The latest OBR figures, in this year’s budget, show a projection of £1398billion for that year increasing to £1637billion in the year 2017-18. What happened to the pledge to eliminate the structural deficit and start paying down the debt by 2015?

  3. Mike Wilson
    Posted May 29, 2013 at 7:10 am | Permalink

    Mr. Redwood – based on current figures, when will the annual deficit become zero?

    At that point, what will total government debt be? Actual money owed to bondholders at that point. Not including future pension liabilities but including PFI liabilities.

    At that point, how much interest will be paid based on the coupon rate for the various government bonds issued that comprise the debt?

    If we were to then maintain growth of 2% a year in the economy, but ran no deficit – i.e. began to run a surplus – how long would it take to repay the government debt?

    • zorro
      Posted May 29, 2013 at 8:16 pm | Permalink

      A very long time…… 😉 ……and in the long run we’re all dead

      zorro

  4. Nick
    Posted May 29, 2013 at 7:27 am | Permalink

    Pension pledges? Its a contract.

    It’s hidden off the books.

    That is fraud by misrepresentation. The victims are anyone who made voluntary contributions on the basis of the government accounts, and the loss will be when you enact any legislation that reduces their pension. For example, the RPI to CPI reduced the payout.

    http://www.legislation.gov.uk/ukpga/2006/35/contents

    Sections 1 to 5 apply to MPs just as much as anyone else. Although from the expenses, you might be able to argue they are immune.

    It’s the debts that cause the cuts.

    http://www.ons.gov.uk/ons/dcp171766_263808.pdf

    5,010 bn two years ago.

    Between 2005 and 2010, the debts rose at 734 billion a year, ignoring the other debts.

    You are bankrupt.

    • lifelogic
      Posted May 29, 2013 at 5:48 pm | Permalink

      We need a state sector pension equalisation tax with the private sector tax say 80% of any state/BBC/Quango pension over £10,000 PA.

  5. Lindsay McDougall
    Posted May 29, 2013 at 11:06 am | Permalink

    My Council Tax has been more or less static for 3 years (2 years of freeze plus a rise of 0.4%). My local Councillor insists that this has been achieved by doing it better – cutting out unnecessary expenditure, obtaining keener supplier prices, and cost sharing between wards. There has been no reliance on increased central government grant. I’m not sure how much scope there is for cutting local authority budgets. Central government should at least refrain from creating additional public sector obligations that they expect local authorities to organise and finance.

  6. ian wragg
    Posted May 29, 2013 at 11:49 am | Permalink

    With further reductions in the armed services and police whilst ramping up overseas aid, there is little chance of your party winning the next election.
    Immigration is set to soar after the new year and the deficit/debt are not reducing.
    Public sector pay keeps rising as does the head count of local authorities.
    Failure on so many fronts makes the spending review irrelevent.

  7. margaret brandreth-j
    Posted May 29, 2013 at 12:45 pm | Permalink

    So far only 1 billion has been saved. There is an awful lot more cutting to do yet. Do you think the coalition successors will cope?

  8. uanime5
    Posted May 29, 2013 at 2:06 pm | Permalink

    I hear that the welfare and NHS budget are going to be ring fenced, meaning that 50% of the budget won’t be reduced.

    Regarding public sector pay rises MPs could ease this pressure by not demanding they be paid an extra £20,000 per year.

    • Bazman
      Posted May 29, 2013 at 5:03 pm | Permalink

      Or public sector bonuses for doing ones job like those paid to Network Rail managers.

    • Chris S
      Posted May 30, 2013 at 10:21 pm | Permalink

      The better solution would be for the LibDems to honour their coalition commitment and vote for the reduction of 50 MPs.

  9. John Orchard
    Posted May 29, 2013 at 2:51 pm | Permalink

    Now, we need to save and make cuts, but we give away each year over eleven billion pounds in overseas aid. If this was reduced 50% then making a savings of 5.5 Billion so what is the problem with this. We are still making contributions to these Countries but like us they will have to tighten their belts. No wonder the British people are fed up with inept Government.

  10. Anthem
    Posted May 29, 2013 at 6:48 pm | Permalink

    Was just flicking through a magazine published by the Pennine Trust (the Trust my wife works in) this evening.

    I see that they have just awarded a £56 million five year contract to G4s to keep their hospitals clean… all four of them.

    I know that hospitals are big buildings but does it really cost over fifty grand a week to keep one of them clean?

  11. Jerry
    Posted May 29, 2013 at 7:06 pm | Permalink

    We keep hearing about savings brought about by spending cuts but we never seem to hear about any savings brought about by Ministers deciding that their departments work could be better done from within another, for example the work of DfID could be taken back in to the FCO, the DWP could be either a part of the DfH, the DTI or perhaps split between them, Health doing pensions and benefits and the DTI doing employment services – even more logical if it’s all going to be web-based via .gov.uk gateway accounts with just a back office & call centre.

    It’s always the “Plebs” who have to, in the end, bare the brunt of these cuts, rarely the civil service and never Ministers and their own careers – or that is how us Plebs often see it, even those who actually wish to vote Tory…

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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