The first £5.75bn of spending cuts has just been announced by George Osborne, Conservative chancellor, and David Laws, his Liberal Democrat chief secretary, in the Treasury garden. It is something of a spectator sport for large numbers of Treasury officials, who seem either keen to get the knives out, or who have too little to work on and are ripe for the chop.
But these cuts represent just the starter, “the first steps” as Mr Laws admitted. The main course is coming later. This near £5.75bn (the announced £6.2 net the £500m which will be recycled back into frontline services) is tiny compared with the £40bn to £50bn that is coming from 2011 onward. So it is worth not getting too excited by today’s cuts.
Here are the big questions and some initial answers.
1. Do the numbers add up? Yes, they seem to. The cuts in spending are applied to government department budgets and so they will release cash. Staff hiring freezes do save money, as does abolishing quangos, as does stopping certain projects. There are also big cuts are in grants to local authorities. Look at the chart below and you can see that the communities department is taking the biggest proportionate hit, with smallest hits in education and the devolved administration budgets. The detail on what will be cut is scant at present, but the departments know they do not have this money to spend any more.
2. Will the cuts threaten the economic recovery? Almost certainly not, but they will not help. £6bn represents one tenth of the amount the Treasury expects the economy to grow this financial year, so you would need the mother of all multipliers between spending cuts and economic output for these to cause a double dip. That said, the cuts are likely to damp growth a little, to the extent that any effect is evident. The much bigger effects will come next year.
3. Do the cuts represent efficiency savings? Far from all of them do. The cuts are better described as attempts to root out the lowest value public spending. So there are some cuts to welfare payments, such as child trust funds and some programmes, such as “Train to Gain”. The pure efficiency savings, I am sure, will be found, but the Treasury has left this to individual departments, who, in turn, will pass the buck to local authorities and individual spending bodies. So the answer to this question will take some time.
4. Will they be noticed? Almost certainly. All government spending pays for people or goods and services. So those suppliers will lose out. Fewer people will be employed. About 30,000 jobs turn over every year in the civil service, so that is a rough estimate of the number of posts that will go. The government will buy fewer goods and services from UK companies and this will cause some pain in the private sector.
5. What is coming next? The real action on public spending will come by October in the Budget and the Spending review. That is when the cuts will really be noticed and will put Britain into what Mr Laws says will be an “age of austerity” in the public sector.
