ANALYSIS:Some of the measures announced by George Osborne will be extremely difficult to achieve, writes MARK HENNESSY
GEORGE OSBORNE is travelling with hope in his heart, planning to cut £83 billion from spending over the next four years so he can put the UK back in the black before the Conservative and Liberal Democrats next face the voters.
However, some of the cuts, announced with such fanfare yesterday in the House of Commons, will be difficult to achieve once they are translated into pounds and pence in the budgets of government departments, local authorities and state agencies.
Almost all of the £19 billion projected in new savings, for instance, will come from greater tax revenues through curbs on evasion and avoidance, along with administrative cost-cutting and welfare benefit reductions, he says. Equally, most, but not all, of the 490,000 jobs to go in the public service will come from “natural wastage”, he argues, because 8 per cent of public servants leave or retire each year. However, many will be loath to risk giving up the bird in the hand for less stable berths elsewhere in the troubled years ahead.
In recent days Osborne and other senior ministers had begun to put out a new message to public servants: job losses could be curbed significantly if they accept pay freezes, though that will be difficult to sell in a country where inflation last month stood at 3.1 per cent.
On capital spending, he has wielded the machete, despite his protestations to the contrary. National Health Service spending on new hospitals will fall by 17 per cent; the budget for new schools is down 60 per cent and spending in Scotland, Wales and Northern Ireland will suffer major cutbacks.
The NHS’s 1.3 per cent rise in current spending, after inflation is taken into account, protects the Conservatives’ election pledge to safeguard it, but it is also dependent on an effective wage freeze and/or major job losses. Nor can there be any more increases in the costs of drugs and treatments – something that has never before been achieved and is unlikely to be achieved now.
Local authorities will enjoy greater freedom from Whitehall, but the downside is that they have been told to cut their budgets by a quarter over the next four years. Iain Hasdell, who is KPMG’s local and regional government head, is not alone in thinking that many of them will not be able to comply.
“I am expecting this challenge to be beyond some councils, which will run out of cash at some point in the next four years, in much the same way as parts of the public sector health economy [where hospitals had to be bailed out when they went into the red] did in the middle of the last decade. Central government is likely to have to effect financial rescues of a small number of local councils later in this parliament,” he said.
The core of Mr Osborne’s plan is simple: jobs lost in the public sector will be replaced by private ones. Yesterday, the Confederation of British Industry said employers are up for the challenge.
Statistics would appear to show that the chancellor’s plans are not fanciful – as long as the UK does not go into recession again.
In the three months to August, the number of people in work increased by 178,000 to 29.16 million, the best result for a year.
Employment is up by 241,000 on the year but is still 270,000 lower than before the recession started. Many of the new jobs, though, are paid at much lower rates than before, limiting their economic impact.
Politics in the UK has been in the neutral zone for some months, as the Conservatives and Liberal Democrats sorted out their spending plans and Labour found a new leader. Yesterday brought some clarity, but it will be months before the consequences of number-crunching in the treasury are felt in the public’s pocket. Only then will the real battle begin.
WHAT IS THE COMPREHENSIVE SPENDING REVIEW?
UNLIKE THE budget, which deals only with the next 12 months, the Comprehensive Spending Review, sets down the broad parameters for British government spending over the next four years.
Why is it happening now?
Comprehensive Spending Reviews, the creation of Gordon Brown, have been undertaken every two years since 1998. Osborne’s version, however, is the most important declaration of intent on spending for decades.
What happens next?
Government departments and agencies have been given their broad envelope of cash and now will produce more detailed spending plans in the coming weeks and months where the devil will be in the detail.
What must Northern Ireland’s Executive do?
It will have to obey London’s spending diktats, but Stormont’s exact figures depend on the Barnett formula, which divides the cake according to population.