Next week at 12.30 GMT Chancellor George Osborne will rise in the House of Commons to present his Comprehensive Spending Review 2010.
This will set out Departmental Spending Limits (DEL) for the fiscal years 2011-12 to 2014-15, and probably a lot more besides.
What should we, and should we not, be looking for in CSR 2010? Well here’s a few ideas:
Don’t expect it to tell you what’s going to happen to your local public services.
CSR2010 will set out overall Departmental for the next four years. These have to be turned into actual Departmental budget by Parliament following the Budget – usually in March – in each of the following four years. The CSR is more a statement of intent than an actual plan, it only becomes “real” when it is translated into annual Budgets and passed in the annual Finance Bills.
Even when that has happened, for most public services departmental budgets have to be cascaded down – often through complex funding formulae – to other tiers of services and government. It won’t be until late March or even early April before we start to see what all this means on the ground, and maybe not even fully then as most services only set spending for one year at a time.
Will the Totals Add Up?
The biggest single thing to look for will be whether the Treasury has succeeded in making the total cuts they forecast in the June 2010 Budget. There has been a great deal of speculation that these are unachievable, but you can bet that the Government will do its best to ensure the headline figures look like they have done what they said they were going to do back in June.
DEL versus AME
DEL – departmental expenditure limits – usually accounts for the majority of public spending. The rest is included in AME – annually managed expenditure – which as the name implies is only fixed annually, although projections of probable AME are given in the Spending Reviews. AME covers things like benefits and contributions to the EU, which government cannot manage easily on anything but an annual basis (and not really even that).
In 2008-09 DEL accounted for 60% of public spending, AME for only 40%. By 2015-16 DEL is forecast (by the OBR) to fall to only 51% whilst AME rises to 49%.
These are the figures from the OBR forecasts after the June Budget – since then significant changes to benefits (AME) have been announced or are expected, so these ratios may well go back to being more like 60/40.
This is important because if welfare benefits take more of a hit, DEL may be higher than it would otherwise have been – meaning departments have more to spend on services.
Ring-fenced versus Non-ring fenced departments.
The most widely quoted figure is 25% cuts, in real terms, for non-ring fenced areas of spending. This sounds simple, but it isn’t.
Firstly, especially for the Department of Health (DoH), it is not clear what “ring-fenced” means. At various points politicans have talked about ring-fencing “front-line” health services, or the NHS, or various other things – none of which are the same as ring-fencing the whole DoH budget. It may well be that ‘ring-fencing’ turns out to be a bit more fuzzy than many expect.
Secondly, although only health and overseas aid are supposed to be fully ‘protected’ from cuts, some other areas may be partially exempted from the full impact.
The first of these is Education – best guesses seem to be this will only take a 10% hit.
Second is Defence, where the eventual outcome is anyone’s guess and rumours are still swirling that Ministers may even resign.
Third is the devolved governments in Northern Ireland, Scotland and Wales. They have been mounting a strong lobbying campaign and NI’s Peter Robinson (DUP) and Martin McGuiness (Sinn Fein) have been especially effective. These governments should get their funding via the fixed “Barnett formula” but that looks increasingly unlikely – especially for NI where there could be genuine problems with the peace-process and Scotland where the Liberal Democrats face annihilation in next May’s Scottish Parliament elections.
Fourth – of course if all or any of the above get more lenient treatment it means other areas will have to take even bigger hits to make up the short-fall.
And watch out for some dodgy accounting – cutting University teaching funds by 80% will come out of public spending totals, whilst funding student loans to pay the Universities instead may well get hidden elsewhere in the figures.
This will be a four year Spending plan – this is very ambitious. Labour managed only three years at best, usually only two years in practice, between Spending reviews and that was in a period of relative growth and stability. There are already rumours of a Spending Review 2012 that would give the government a chance to adjust what it is doing.
This raises the thorny problem of phasing the cuts. If, for example, you have to cut 25% in real terms over four years, do you just slice 6.25% a year off the budgets? Or do you ‘front load’ the cuts – say cutting 9% a year for the first two years and then easing off? There are political and economic arguments about these options – for example politically it might be better to get the pain over early, but economically it increases the risks of a double-dip recession.
And of course the phasing may be varied on a department-by-department basis. Some make take a bigger hit earlier, whilst others are left to later. For example Education, Defence and the devolved governments might get a more lenient settlement for the first couple of years, but be expected to make it up later?
The temptation to do something like this and hope that “something turns up’ – like the economy – by 2012 must be huge.
All of the above will make the details of CSR 2010 even more important than usual, and probably more difficult to immediately decipher. My guess is it will be several days, at least, before all becomes completely clear. And some decisions – like Defence – may even yet be put on hold.