Obscure changes to tax and welfare take the strain
I revealed early in the afternoon that business is to be hit with a £1bn stealth tax based on carbon emissions.
The red book is full of other changes which will raise money fairly discreetly on the basis that few people will have heard of them. On their own they may seem fairly modest but in tandem they are raising billions of pounds – without the highly visible impact of, say, a rise in income tax.
Here are a few examples. Read more
From the FT’s Money Supply blog:
As far as Britain’s economy is concerned the spending review, just published, changes little. There was the “reprofiling” predicted first in the Financial Times, but it amounted to only £2bn a year of additional gross capital expenditure. This will not make the difference between stagnation and recovery. The Treasury is right: there is no Plan B. Read more
This was always a problem George Osborne would be unable to solve. As a result of this spending review, pensioners next year will receive £600m less in winter fuel payments.
Does this break the Tory pledge in the election? Not quite. When David Cameron made his read my lips campaign promise, he vowed to “keep what we inherit” on winter fuel payments, free bus passes and other benefits to pensioners.
Most people would have expected that to mean that he matched the same payout as Gordon Brown.
But the Treasury accounts are a funny thing. As I disclosed in August, Brown only booked in a payment of £2.1bn in 2011. The additional £600m was his Christmas bung, a festive gift to show how munificent a leader he was. It was a one-off that he re-announced every year. Read more
Which cabinet minister is king of the axe?
Page 87 on “Spending Review 2010″ gives a list of cuts to departmental adminstrative budgets. All departments are cutting by 33 per cent except Work and Pensions (35 per cent), culture and media (41 per cent), the business (40 per cent) and – toughest of all – communities (42 per cent). That is the department headed by Eric Pickles.
Page 10 gives the forecasts for departmental “programme & administration” budgets. The third biggest real terms cut was Defra (29 per cent), second was international development (33 per cent) and first was once again communities, where spending will fall by 51 per cent. Read more
Surprise £1bn green tax on business in the small print
George Osborne has come up with a £1bn a year toll, mainly on businesses, which is so complicated that some may not spot it straight away.
There is an existing scheme called the “CRC Energy Efficiency Scheme” which applies to about 5,000 heavy users of energy (mostly companies but also councils and government departments). At the moment those who cut their carbon use receive net payments out of the programme paid for by those who are penalised for their heavy use. Read more
Commentary led by Jim Pickard and Alex Barker of the FT’s political team, Michael Hunter, markets reporter, Gordon Smith, FT.com’s deputy news editor, Martin Sandbu, editorial writer and co-ordinated by Darren Dodd, of the UK newsdesk.
The chancellor sat down in the House of Commons at 1.33pm
JP: Osborne’s stroke of genius is to announce departmental cuts of 19 per cent – just lower than the 20 announced by Labour in March. Let’s wait to find if he is comparing apples with pears.
Average savings in departmental budget to be lower than the average implied in Labour’s March budget. Instead of average cuts of 20 per cent, there will be cuts of 19 per cent per department
Osborne says: “The measures set out today bring sanity to our public finances”
£15.8bn to refurbish schools
Schools budget to rise from £35bn a year to £39bn
More on education: Early years education budget for schools to rise over each of the next four years. New £2.5bn pupil premium for disadvantaged children. And Sure Start services budgets will be protected in cash terms
Now for transport: The cap on rail fares will rise to retail price index plus 3 per cent for 3 years from 2012. £30bn to be invested in various transport projects over the next 4 years. M25 will be widened between 10 junctions. Crossrail will go ahead among other investments in Britain’s transport infrastructure
The BBC’s online budget will fall and it will not expand its activities competing with local media
Pilots of super-fast broadband to be started in the coming months
Now for the BBC: The BBC will take from the government the responsibility for the World Service. The licence fee will be frozen for the next six years
Osborne says there will be £1bn to set up a “green investment bank”
JP: There is a 50 per cent increase in funding for apprentices. But the chancellor isn’t spelling out which schemes will suffer to pay for this – my bet would be the £1bn ‘train to gain’ fund (used to help companies send staff on training).
£220m invested in the UK Centre for Medical Research and Innovation at St Pancras. £200m to be invested in developing wind technology
Now for science: The science budget is protected at £4.6bn a year Read more
Fear and loathing in Whitehall
When George Oborne addressed the cabinet this morning his message was the usual one about trying to make the cuts as fair as possible and to “fall on the broadest shoulders”. The chancellor admitted that this was an “anxious time for some in the public sector” who could now lose their jobs.
Lord Adonis meanwhile claims in this morning’s FT that “Whitehall is stunned and morale risks plummeting” as the cuts reality dawns. This chimes with what I’m told by several civil servants who read this blog.
Many departments are already going through a redundancy process – instigated in June – even before the new £83bn wave of cuts which will see an estimated half a million public sector jobs go.
I am told of one leaving party for BIS staff, held in a local pub, which attracted three or four hundred attendees. The atmosphere was utterly morose. Meanwhile some civil servants are receiving letters giving them only a week to decide whether or not they want to leave. As for those who are quitting, there are rumours that they may not be paid their redundancy payments until the end of November – a six week gap. “It feels really chaotic,” one tells me. Yet this is only a foretaste of the cuts to come. Read more
The axe is hovering over the £4.2bn council tax benefit bill. The details are patchy, but I’m hearing speculation that it could be cut by as much as 10 per cent. If it doesn’t emerge as one of George Osborne’s welfare savings today, it was certainly one he closely considered.
A cut is likely to involve some complex changes to some eligibility rules that are already incredibly complex. The rebate is currently paid to people on low incomes: lone parents, jobseekers and around 3.5m over-65s who are mostly on pension credit. But it is impossible to neatly sum up the criteria. Read more
Has Michael Gove’s discreet approach to budget negotiations paid off? Education bravely resisted the shroud waving that marked the defence review. But it looks like Gove has emerged with a better deal than Fox, at least in terms of his resource budget.
We already know that schools spending — based on the Ed Balls baseline — will rise in real terms (albeit by a tiny amount). Today’s surprise will be that the education department will win the best settlement of all the unprotected departments. That means its resource budget will be cut by less than the 7.5 per cent imposed on defence. When it came to a stand-off between kids and frigates, the kids appear to have prevailed.
Now, as with all settlements announced today, the headline figure mask a great deal of pain. Spending channelled through local authorities (such as children’s services) will suffer. So will spending on 16 to 19 year olds. And of course the resource settlement does not include the education capital budget, which is about to be thumped. Read more
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Jim Pickard is the FT's chief political correspondent, having joined the lobby team in January 2008. He has been at the FT since 1999 as a regional correspondent, assistant UK news editor and property correspondent.
Kiran Stacey is an FT political correspondent, having joined the lobby in 2011. He started at the FT as a graduate trainee in 2008, working on desks including UK companies and US equity markets before taking over the FT's Energy Source blog.
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