Westminster Blog

George Osborne and Danny Alexander

This June, George Osborne will unveil his spending review for the financial year 2015/16. The chancellor is expecting to have to make around £10bn of cuts to Whitehall departments, which, as we revealed in the FT a few weeks ago, would mean some departments taking a particularly heavy whack.

Our figures show that cutting at the same pace as the government has done so far, which is what Osborne has promised, would mean another £1bn taken out of both the business department and the money that goes to local government. The defence budget, possibly the most sensitive of budgets, at least within the Conservative party, would fall by nearly £770m.

One of the options available to the chancellor is for him to cut from welfare spending instead of departments. The problem is that the Liberal Democrats have said they won’t stomach more money being taken from the benefits bill, with Vince Cable promising “not a penny more” from welfare. At the moment, the Treasury is working on the assumption that all the money will come from departments, but comments made by David Cameron in India suggest he is trying to reopen that debate before the hard bargaining starts.

This is what the prime minister told Channel 4 News:

My view is if you want to control effectively public spending, you shouldn’t take anything off the table, you have to look at all of the big items of spending.

The welfare budget at £200bn is an enormous budget.

Clearly, the coalition will have discussions about how we best deliver that spending round in the future.

What is the prime minister up to? One option is that he thinks the Lib Dems might genuinely soften their resistance, especially when they realise the science budget, which they want protected, could be under threat. The other is that he knows there are no more welfare cuts to come, and simply wants to show the Tories are on the same side as public opinion on the issue. If it is the latter, it is a risky game; if he looks like he has been thwarted by the Lib Dems in spending negotiations, it will only enrage his own backbenchers.