On the basis of Osborne’s spending plans, it looks like the coalition is either:
– bracing for a war with Scotland over the Barnett formula
– preparing for 34 per cent departmental cuts that will empty Britain’s prisons
– teeing up an extra £20bn or so of extra welfare spending cuts
Before you accuse me of exaggerating, take a look at the rough maths. (This is courtesy of the ever-sharp Ian Mulheirn at the Social Market Foundation.)
He also gave reassurances on defence and education. If you assume that means a flat cash settlement (i.e. at least a 10 per cent cut), then Osborne needs to find about £43bn savings from around £150bn of spending.
It is quite a pinch given that includes around £49bn of grants to Scotland, Wales and Northern Ireland.
Half of the devolved funding is spent on health and education. So unless Osborne is planning to skew health and education funding to England (cue fight with Scotland), he’ll need to find the savings from the other half of the grant.
That would leave him having to find around £43bn of cuts from around £125bn of spending.
The result? Savage, practically unachievable 34.4 per cent cuts to drive through for the home office, justice, business, transport and local government.*
This is all but impossible. So it leaves two alternatives. One is reopening the devolved settlements. A good idea but Osborne would still struggle to make the kind of savings he needs.
To find cuts in the order of £20bn, he’s better off looking at the whopping benefits Budget — or imposing a levy on public sector pensions of 5 to 10 per cent.
Conclusion? The squeeze on welfare and the public sector pay bill has only just begun. And don’t be surprised if taxes go up again too.
* Worth bearing in mind that it’s not the end. According to the Budget he’ll need to add further £15bn on to the consolidation by 2016. Assuming he protects the same departments, it amounts to a cumulative 46 per cent cut. Ouch.