20 October 2010

Major cuts in public spending were revealed today by the RT Hon George Osborne MP, Chancellor of the Exchequer, as part of the Comprehensive Spending Review. With a deficit of £109 billion, the UK has the largest structural budget deficit in Europe. The Chancellor said "today’s the day when Britain steps back from the brink. When we confront the bills from a decade of debt. A day of rebuilding when we set out a four-year plan to put our public services and welfare state on a sustainable footing – for the long term. We are going to bring the years of ever-rising borrowing to an end. Tackling this budget deficit is unavoidable. We are paying, at a rate of £120 million a day, £43 billion a year in debt interest."

"We have chosen to spend on the country’s most important priorities – the health care of our people, the education of our young, our nation’s security and the infrastructure that supports our economic growth. We have chosen to cut the waste and reform the welfare system that our country can no longer afford. We will not take Britain back to the brink of bankruptcy."

This diagram shows government spending on debt interest and amount of borrowing as part of total budget. Image copyright of HM Treasury.

Among the key spending cuts were:

In the June Budget the Government announced that it would save £11billion per annum from welfare spending by 2014-15. To put welfare on an affordable footing, the Spending Review announces further savings of £7 billion, bringing total welfare savings to £18 billion per annum by 2014-15. The government also announced the creation of 'Universal Credit', an integrated payment that will sharpen work incentives and reduce fraud and error.

Major departments like the Cainet Office, Department for Education and the Department for Business, innovation and Skills had their budgets cust by between 19% and 35%.

The Spending Review also delivers the Government’s specific commitments set out in the Coalition Agreement to:

• Increase NHS spending in real terms in each year of this Parliament;
• spend 0.7 per cent of Gross National Income on overseas aid by 2013 and
• restore the earnings link for the basic state pension from 2011, as part of the triple guarantee of using earnings, prices or 2.5 per cent, whichever is highest, from April 2011.

The Spending Review and Departmental Spending

Cabinet Office

In line with the Government’s determination to tackle Britain’s deficit, the Cabinet Office has announced today that it will reduce its core resource budget by 35% in real terms, from £280m in 2010-11 to £200m by 2014-15.

Over the course of the Spending Review period, the Department’s Administration budget will be reduced by 33% with a 28% reduction in capital spending.

On top of its existing responsibilities the Cabinet Office will also take a range of new responsibilities, in total this will mean that the Cabinet Office resource budget will increase by 28%.

The Department will manage its budget reductions by:

• reducing the use of consultants, streamline back office services, rationalise the estate and reduce its costs, reduce staff costs and the costs of running each Directorate and renegotiate supplier contracts.
• a reduction of 25% across the period in the costs of providing support to the Prime Minister, including reducing travel costs through the use of more scheduled flights where possible rather than charters, energy efficiency and wider efficiencies.

The Cabinet Office will also take forward a number of ideas suggested under the Spending Challenge through the Efficiency and Reform Group, these include:

• Implement new standard guidance on government travel policies, bringing them in line with industry best practice, to save £100m per year;
• Initiate a programme to centralise the procurement of commonly used goods and services bringing efficiency gains of over £400m per year.

The Cabinet Office will also implement the Government’s response to Sir Philip Green’s review into Government efficiency by applying best business practice to procurement.

The Cabinet Office new responsibilities and funding will include:

• Around £470m support for the Civic Society organisations sector, including a £100m fund to help charities, voluntary groups and social enterprises make the transition to a tougher funding environment, to work with us to build a big society, and make the most of the opportunities it will bring;
• A National Citizen Service which will support young people from a mix of different backgrounds to develop skills and engage with their communities – sufficient to fund 10,000 places in 2011/12 and 30,000 in 2012/13;
• The Community First Fund which will support new and existing small organisations in the most deprived areas;
• The Coalition’s Electoral and Constitutional Reform agenda - with one off costs of £95m most of which will fall in the final year of the settlement.
• It will also be allocated £120m in the last year of the settlement for the European Parliament elections.
• It will receive £85m to support the introduction of individual electoral registration (IER) in 2014 to help tackle electoral fraud by moving away from household registration and confirming identities through secondary sources.
• It will also fund the Boundary Review to reduce the number of MPs sent to the House of Commons – worth £10m over four years.

In addition to these new responsibilities and to reflect greater transparency in Government Budgets the Cabinet Office budget will now also include resources transferred to the department to fund DirectGov and the Office of Government Commerce which would previously have been allocated as Non-Departmental Government bodies.

Department for Education

The schools budget will increase in real terms in each year of the Spending Review period. But economies in other areas mean that there will be a total real reduction in Departmental resource spending of 3% by 2014-15. Following on from the decision to halt Building Schools for the Future (BSF), capital spending will be reduced by 60% in real terms by 2014-15. The average annual capital budget over the period will be higher than the average annual capital budget in the 1997-98 to 2004-05 period.

This will be supported through the following measures:

• We will increase funding for the schools budget by £3.6 billion in cash terms by the end of the Spending Review period - this is a 0.1% increase in real terms in each year. Along with greater freedoms and flexibility for teachers and schools, this will ensure schools can meet the demographic pressures they face, and deliver a £2.5 billion pupil premium. This will support the educational development of disadvantaged pupils, and provide incentives for good schools to take on pupils from poorer backgrounds.
• Because the Government recognises that a good early years education is critical to later achievement, we will be maintaining 15 hours of free childcare a week for all 3 and 4 year olds, and extending it to all disadvantaged 2 year olds. It's also why Sure Start will be protected in cash terms including investment in Sure Start health visitors.
• Ending Education Maintenance Allowances, which have deadweight costs of around 90%, saving £0.5 billion, and replacing them with targeted support for those who face genuine financial barriers to participation;

The Department of Business, Innovation & Skills (BIS)

Over the course of the Spending Review period, the Department for Business, Innovation and Skills (BIS) will reduce its resource budget by 25 per cent. Taking into account anticipated receipts, the cut to capital spending by 2014-15 will be 44 per cent. The Department’s Administration budget will be reduced by 40 per cent, including savings from abolition of the RDAs.

The Department will manage the reductions in resource spending by reforming Higher and Further Education funding which will deliver broadly 65 per cent of BIS resource savings; driving efficiencies will deliver around a further 25 per cent and the remainder of resource savings, around 10 per cent, are from cancelling lower priority activities.

In line with the Browne recommendations, the Government is changing the way that Higher Education is funded, moving away from the current model to one where those who benefit make a greater contribution to the cost.

This means the overall resource budget for Higher Education, excluding research funding, will reduce from £7.1 billion to £4.2 billion, a 40%, or £2.9 billion, reduction by 2014-15. The Department will continue to fund teaching for Science, Technology, Engineering and Mathematics (S.T.E.M) subjects.

The Government will, by 2014-15, establish a new £150m National Scholarship Fund to support students from disadvantaged backgrounds.

The Government will ensure the UK remains a world leader in science and research. To do this it will continue support for the highest value scientific research, maintaining the science budget in cash terms over the Spending Review period with resource spending of £4.6 billion a year by 2014-15. A ring fence will be maintained by the Department for Business to ensure continuity of investment in Science and Research

Key capital projects going ahead include £220 million in funding to ensure that the UK Centre for Medical Research Innovation goes ahead as planned. Funding will be provided for the Diamond Synchrotron worth £69 million.

The Further Education resource budget will be reduced by 25%, or £1.1billion, from £4.3 billion to £3.2 billion by 2014-15. We will continue to support basic skills provision so that those left behind first time around can continue to gain basic numeracy and literacy skills. We will continue to support Adult and Community Learning and reduce the complexity and bureaucracy that hampers providers from responding to community needs.

To ensure that businesses have the highly skilled workforce needed to drive growth the Government will boost spending on adult apprenticeships by £250m a year, providing up to an additional 75,000 apprenticeship places every year by the end of the Spending Review period.

Reductions to key BIS activities include the ending of Train to Gain and replacing it with an SME focused training programme, English for Speakers of Other Languages (ESOL) funding for people not in settled communities, and the Regional Development Agencies will also be abolished in 2012.

The administration budget of BIS will reduce by 40 per cent over the spending review, including a saving of up to £228m in admin costs as a result of the abolition of the RDAs. BIS is also undertaking an ambitious programme of arms length bodies reform bringing the total number down from 57 to 33, with 9 continuing under review and back office reform across the entire BIS network, which will cover estates, ICT, HR, finance and procurement functions in many BIS partner organisations.

In order to promote economic growth the Department will, in addition to its FE, HE and science activities:

• lead the creation of a UK-wide Green Investment Bank that will be capitalised initially with a £1 billion spending allocation with additional significant proceeds from the sale of Government-owned assets, to catalyse additional investment in green infrastructure;
• play a key role in the operation of the new £1.4bn Regional Growth Fund, that will support projects with significant potential for private sector economic growth and employment, particularly in areas dependent on the public sector ;
• and invest up to £200 million by 2014-15 to support manufacturing and business development – with a focus on high growth businesses

Click here to download a copy of the CSR 2010 Complete Report
Click here to download a copy of the CSR 2010 Departmental Expenditure
Click here to download a copy of the Defence Review 2010
Click here to download a copy of the Security Strategy Review 2010