George Osborne announces £11.5bn in cuts in the government’s latest spending review that will set the tone for the next general election. Coverage and reaction by John Aglionby and Lina Saigol.
Hello and welcome. The headline figure of £11.5bn for the cuts has been known for some time, but where did it come from? Chris Giles, the FT’s economics editor, has done a Q&A on the figure and how it fits into the government’s strategy.
The short answer is that it is a made-up figure, designed to force ministers to be co-operative with their budgets.
The coalition could not agree on a longer period of cuts, but any government elected in 2015 will face unfinished business of at least two more years of austerity and, as the chart shows, 2016-17 and 2017-18 currently have even steeper spending cuts for government departments schemed in.
George Osborne tweeted this picture last night, prompting his shadow Ed Balls to ask what he was eating. “It’s not marathon fuel..”
What’s going to happen is that at 12.30pm today Osborne is to outline capital spending priorities for the next five years alongside total capital spending commitments. Details on which infrastructure projects will be funded will be revealed tomorrow.
The team at Capital Economics says the Spending Review will essentially just flesh out how the cuts that have already been announced will be achieved.
Nonetheless, the Government may use it to shift around its spending in a slightly more growth-friendly way.
And the Review has marked a shift in the political debate about austerity, with continued fiscal tightening set to remain a defining feature beyond the election.
The biggest questions are over which departments will be hardest hit.
Chris Giles, FT economics editor, again:
It is already clear that pain will not be shared equally. Mr Osborne dislikes talk of “ring-fences” for health, schools, overseas aid and pensions and prefers to talk about “the public’s priorities”. Spending on infrastructure is also high up the chancellor’s list of favoured spending items. Down near the bottom will be those who also lost out in the 2010 spending review.
Local government, the Foreign Office, culture, justice and environment spending have been cut savagely since 2011 and are set to be hit further. Although the detail must wait until Mr Osborne gives his statement to Parliament, it is a fair bet that the same ministers will be asked to make even greater savings this time.
The FT’s video team has asked whether austerity is here to stay.
The big picture:
Prime Minister’s Questions are starting in House of Commons
Labour leader Ed Miliband asks about infrastructure spending on schools, saying that 261 schools were promised money and work has started on only one.
PM David Cameron says the problem is that the government has had to spend so much time “clearing up the mess left by the last government”.
The current state of UK unemployment:
The tit-for-tat over statistics continues. Cameron says the government has electrified 300 miles of railway, while Labour electrified only nine miles.
Miliband retorts that the Labour government rebuilt 3,700 schools and 3,500 new children’s centres. He also accuses Cameron of not replying to questions a PMQs, only asking ones of his own.
Miliband says the government’s homebuy scheme promised 100,000 new homes but has delivered only 2,000. Cameron replies that the government has built 84,000 affordable new homes.
Tory leader of Westminster Council, Philippa Roe, wants more decentralisation:
We know that local government is looking at a 10% reduction on Wednesday, so the traditional game played by some councils of bemoaning the lack of money is even more pointless than usual.
If you are one of the authorities who gains from the announcements we have been led to expect on roads and housing, then that’s great. But it is clear that in the long-term, centrally allocating money from Whitehall isn’t the best way to kick start local schemes. That’s why the government needs to make sure the most progressive authorities can benefit from the so-called Heseltine pot, making it as deep and wide as possible in the funding that goes into it from across Whitehall.
Councils have the local knowledge and the expertise to make this work far harder for local economies than centrally delivered projects.
It’s now down to us as local authorities to behave differently when it comes to delivering services, and that covers everything from social finance schemes to early intervention on troubled families. Freeing up restrictions and allowing councils to borrow against their assets is key.
That will allow us to build more houses, get more people into work, save money and deliver better public services. The chancellor has an opportunity with the spending round to do exactly this, but he needs to be radical and not let the opportunity slip.
” Labour delivered an unaffordable boom, a painful bust and it’s this government that’s delivering the recovery”
Here’s what Julian McCrae of the Institute of Government thinks you should watch out for in the Spending Review.
Here’s an explainer from the Treasury on how public spending works
A couple of quick facts:
The UK is still spending about £120bn more than it receives each year.
Public sector net debt is forecast to peak at 85.6 percent of GDP in 2016-17.
RECAP on benefits: So far, the government has announced a cap on benefits for any one family at £26,000 a year to ensure that those on state aid do not receive more than the average working family.
Recent polls have shown as many as six out of 10 voters think state benefits are too generous.
In response to questions from opposition MPs on why borrowing is going up – the latest being Barry Gardiner, Cameron has repeatedly resorted to his stock reply that the government is having to “clear up the mess” from the previous government. It sounds a bit of a broken record…
U.K. government bonds have risen for first time in five days after BoE policy maker David Miles said the economy remained weak and as he renewed his call for more asset purchases.
Kiran Stacey, FT political correspondent on his verdict of the Cameron vs Miliband dispatch box duel:
Ed Miliband made a sensible choice today to attack David Cameron for not delivering on future infrastructure promises, rather than trying to guess what might be promised later today. He had some good stats to hand: of 261 new schools promised by the coalition, only one has been built. Of 576 projects in the infrastructure pipeline, seven have been completed. Of 10,000 new homes promised under the New Buy scheme, 2,000 have been delivered. Cameron countered by asking Miliband about Labour’s plans to borrow more, but Miliband’s pointed, direct questioning won him the contest. Not that it will be remembered for long however.
“You promised to get Britain building but (you) haven’t. All you need to know about this Chancellor’s spending review is that the British people are paying the price for their failure.”
George Osborne is now getting up to speak
The action we’ve taken… has taken the economy back from the brink of bankruptcy.
Osborne’s three principles:
Reform, Growth and Fairness
In the face of all the evidence the opposition has collapsed into incoherence
I its last year in office, the previous govt was borrowing £1 in every £4 it spent – a record in peacetime.
The chancellor says the unfairness of the “something-for-nothing culture” of welfare will end.
The truth is we have to deal with the world as it is, not as we wish it would be
Osborne accuses Labour of economic “incoherence”.
In 2015-16: Total managed expenditure will be £745bn
Public sector pay rises will be capped at 1% in 2015-16
The coalition has saved almost £5bn by negotiating harder and finding efficiencies, the chancellor says.
Civil service is now smaller than at any time since World War II
In 2015-16: Total managed expenditure will be £745bn – this is £120bn lower than it would have been had spending continued as it had been under Labour, Osborne says.
Coalition will find another £5bn of efficiency savings in 2015-16
Size of civil service to fall by another 144,000 in 2015-16
Council tax freeze, that’s due to end next year, will be extended for another two years. Savings will be about another £100 a year for each family, Osborne says
Kiran Stacey, FT political correspondent:
In a pointedly political opening to his speech, the chancellor laid out three principles behind the spending round: reform, growth and fairness. Unsurprisingly, the mention of fairness generates loud jeers from the Labour side, especially when he repeats the mantra “We’re all in this together.”
Culture ministry budget to be cut by 7%. Elite sport to be protected. Museums budget to be cut by 5%
A Summary so far:
When the government took office, it was borrowing £1 for every £4 it was spending. Now it is borrowing is £49bn lower than it was and the deficit has come down by a third.
Every job lost in the public sector over the last year has been offset by five gained in the private sector.
Further £5bn of efficiency savings
Around 144,000 fewer people will work in the public sector by 2015-16
“Automatic progression pay” is “antiquated” and will go by 2015-16. This will not include the armed forces.
The Cabinet Office resource budget will see budget cut by 10%
Local government resource budget will have to make savings of 10%, Mr Osborne says.
Committing more than £3bn to affordable housing
“We will not cut the number of soldiers, sailors or airmen”
Foreign Office budget to be cut by 8%
Home Office budget to cut by 6.6%, police budget to be cut by less than that
Counter terrorism budget not to be cut
Prison services budget to be cut by 10 per cent
Communities resources budget to be cut by 10%
HERE’S WHAT HE SAID ON DEFENCE:
1) The £38bn spending black hole in the MoD has been filled.
2) MoD civilian employees will be cut, military capability will be protected.
3) The defence equipment budget will increase by 1% in 2015-16.
4) Families of veterans will supported by using fines raised from the Libor banking scandal.
£50bn to be spent on capital spending – from “railways to broadband” in 1015. Details on infrastructure plans to be announced tomororw
Transport department: Day-to-day spending to be cut by 9% But capital spending to be increased by £9.5bn in 2015 and every year to 2020
Energy and climate change department budget to be cut by 8%
Spectator Chairman Andrew Neil tweets a good point:
Environment and rural affairs department budget to be cut by 10%
Business department budget to be cut by 6%
Science resource budget: maintained at £4.6bn, capital budget to be increased to £1.1bn
Keep inventing, keep delivering. This country will back you all the way
Education department to be maintained at £53bn and schools budget to be protected in real terms.
School funding to be made more equal across the country. A national funding formula to be introduced.
*This from the FT’s deputy political editor Beth Rigby:
Schools capital budget to be £4.6bn in 2015 and £21bn through to the end of the decade
20 new studio schools, 20 new technical colleges and 180 new free schools in 2015
Osborne says the Treasury has determined that the richest fifth of the population will bear the brunt of the cuts announced today
Revenue and Customs department budget to be cut by 5%
Overseas aid budget to be protected at £11.1bn
NHS budget to be £110bn with capital projects’ budget to be £47bn
Health and social care budgets will be brought together in some areas. The integrated budget will be greater than £3bn and save the NHS more than £1bn, Osborne says
HOME OFFICE: 6%.
MINISTRY OF JUSTICE: 10%
TRANSPORT: 9% saving in day-to-day spending, but receive the largest boost of any department to its capital budget, which rises to £9.5BN – to be repeated every year to 2020.
ENERGY AND CLIMATE CHANGE: 8%
ENVIRONMENT, FOOD, RURAL AFFAIRS:10%.
BUSINESS, INNOVATION AND SKILLS: 6%
Welfare budget to be capped: to be set each year in the budget, in cash terms
Labour MP Tessa Jowell tweets:
“Today we’re setting a limit on the nation’s credit card”
Shadow chancellor Ed Balls’ heckles getting louder by the second….
From autumn 2015 *winter fuel paymentW to be linked to a temperature test – not to be paid to people living abroad in hot countries
Work and pensions department budget to be cut by 9.5%
Unemployment benefits will only be paid to people who are registered at job centres – will have to attend job centres every week, not once a fortnight
If claimants do not speak English, they will have to attend language courses until they do.
“If you’re not prepared to learn English, your benefits will be cut”
Welfare reforms in 2015-16 will be £4bn and will bring total of government’s term to £18bn
Osborne sits down
Ed Balls, shadow chancellor stands up
The FT’s global market commentator Jamie Chisholm says the markets aren’t reacting much too the Chancellor’s review:
Statements from the UK chancellor don’t tend to have much impact on UK-focused assets, partly because the contents are known before hand and also because the market tends to sway in line with the global trend. Today is no exception.
Sterling is is down 0.4 per cent versus the dollar to $1.5359, but this is the same percentage decline seen for the euro and is a function of broad greenback strength rather than any reflection on UK specifics.
Ten-year gilt yields are off 7 basis points to 2.47 per cent, declining in line with Treasuries and Gilts and barely changed from when Mr Osborne started talking.
The FTSE 100 is up up 0.9 per cent as US index futures rally.
“Not once did he mention the real reason for this spending review, his comprehensive failure”
Ed Balls says deficit in 2015/16 will be £96bn
The FT’s Editor Lionel Barber tweets:
Ed Balls says Osborne promised at the beginning of the government’s term that by this year the economy would grow by 6%, but it’s only growing 1%
“His friends call him George, the president calls him Jeffrey, to everyone else he’s Bungle.”
Much laughter in the Commons
Labour MP Chris Bryant can’t believe what he’s hearing:
Bryant is referring to Osborne saying claimants will now have to wait a week until they can claim unemployment benefit.
Balls calls for a tax on bank bonuses, mansion tax and benefit cuts for the richest people
Balls asks if there will be fewer police officers and nurses in 2015-16, and if the free national museum entry policy will be retained
“There’s a lot of detail he didn’t provide for the House.”
Balls sits down and Osborne stands up again
Osborne asks whether Labour, if it wins the next election, would match the coalition’s spending plans.
The Speaker admonishes Osborne for answering questions by asking more questions
WELFARE: “The cost of welfare went up by a staggering 50 percent – even before the crash. Our Welfare Cap will stop that happening again. The Cap will be set each year the Budget for four years. It will apply from April 2015 and reflect forecast inflation, set in cash terms.”
We commit now to £50bn of capital investment in 2015. From roads to railways, bridges to broadband, science to schools. It will amount to over £300bn of capital spending guaranteed to the end of this decade.”
“The Chief Secretary will tomorrow set out the next stage of our economic infrastructure plan, with specific plans for more than £100bn of infrastructure projects.
TRANSPORT: “The DoT will make a 9 per cent saving in its day to day resource spending…..but its capital budget will rise to £9.5bn – the largest rise of any part of Government. And we will repeat that commitment for every year to 2020.”
ENERGY “Investing in our economic infrastructure also means investing in energy….This country is already spending more on renewables than ever before. We will provide our country with the energy of the future at a price we can afford. And taken together this should support over £100bn of private sector investment in our energy. The Department of Energy and Climate Change will reduce its resource budget by 8 per cent.”
DEFENCE “The defence resource budget will be maintained in cash terms at 24 billion pounds. The equipment budget will be £14bn and will grow by one per cent in real terms thereafter.”
FUNDS FOR LOCAL ENTERPRISE “We’re also embarking on major reforms to the way we spend money locally through the creation of the Single Local Growth Fund… This will be £2bn a year.”
AFFORDABLE HOUSING “We’re committing over £3bn capital investment in affordable housing and we will extend the Troubled Families Programme to reach 400,000 more vulnerable families who need extra support.”
COUNCIL TAX “We will fund councils to freeze council tax for the next two years. That’s nearly £100 off the average council tax bill for families. This bring savings for families to £600 over this Parliament.”
PUBLIC SECTOR PAY “We are holding down pay awards. And public sector pay rises will be limited to an average of up to one per cent for 2015-16.
ENDING AUTOMATIC PAY RISES FOR SOME CIVIL SERVANTS Progression pay can at best be described as antiquated; at worst, it’s deeply unfair to other parts of the public sector who don’t get it and to the private sector who have to pay for it. So we will end automatic progression pay in the Civil Service by 2015-16…We are working to remove automatic pay rises simply for time served in our schools, NHS, prisons and police. The armed forces will be excluded from these reforms.”
Here’s Osborne’s spending review speech in full
More on the public sector pay cuts:
Automatic progression pay – where some civil servants get pay rises and move up a pay grade every year regardless of performance will end.
Government is working to remove automatic pay rises simply for time served in our schools, NHS, prisons and police.
The armed forces will be excluded from these reforms.
Michael Conroy Harris, construction and infrastructure expert at global law firm Eversheds, has yet to be convinced about the government’s infrastructure spending plans:
“Despite today’s positive news for road and rail, it seems that the actual delivery of major infrastructure projects in the UK remains on the horizon. It is akin to tweaking the tail of a dinosaur, as any stimulus now won’t be felt for a long time.
“For too long the emphasis has been on planning projects rather than doing, with endless revisions to timetables and no decisive action. It will be interesting to see the full detail of infrastructure plans, which will be set out tomorrow, and one can only hope that these plans are expedited to ensure they make a meaningful impact on the UK economy.”
FT Editor Lionel Barber:
Duncan Farrow-Smith, defence partner at Deloitte says the measures announced today were as expected, with no further cuts to the Armed Forces and a one per cent increase year-on-year in the equipment budget in real terms.
However, the Department will have to work harder to reduce costs in the civilian workforce. This will be dependent on major change programmes being delivered such as the Materiel Strategy.
“Cyber remains a key priority for Defence. Increasing investment by 3.4% in the Intelligence Services budget is evidence the Government recognises the need to grow its cyber capabilities. This trend is being seen on a global basis in countries with similar economies to the UK.”
This is fairly typical of the Twitter reaction from non-Conservatives:
“UKIP leader NIGEL FARAGE” gives his verdict on Osborne’s review
John Longworth, director general of the British Chambers of Commerce comments:
For our economic future to be great, rather than just acceptable, Britain needs a more radical shift in public expenditure to underpin a truly enterprise-friendly environment.
UKIP leader Nigel Farage is busy tweeting:
Kiran Stacey, FT political correspondent, has just filed his analysis of the review. His conclusion:
If George Osborne ever conducts another spending review, his cabinet colleagues have learnt one thing from today’s announcement: complain loudest and you will get the best deal.
He adds that arguably the most disappointed person after today’s speech will be:
Lord Heseltine who had called for up to £49bn of government money to be pooled together and spent on regional growth projects. The chancellor has given him just £2bn.
The BioIndustry Association is happy about Osborne’s plan for science and technology:
Steve Bates, BIA chief exectuive has this to say:
The BIA is delighted that the government will continue to support the Biomedical Catalyst, one of the key measures in its Strategy for UK Life Sciences, which has been warmly received across the sector.
I am meeting with the TSB next week to understand the details of how this funding will be scheduled and allocated.”
The BIA is also pleased to see that government will maintain resource funding for science in cash terms at £4.6 billion in 2015-16 and increase science capital funding in real terms from £0.6 billion in 2012-13 to £1.1 billion in 2015-16, and in line with inflation to 2016-17.
Chief of the Defence Staff, General Sir David Richards said:
“Protecting our manpower and equipment ensures the Armed Forces can plan for the future with certainty and maintain battle-winning capability.
“Our soldiers, sailors and airmen, backed by state of the art equipment including new aircraft carriers, hunter-killer submarines, Type 45 Destroyers, fifth-generation stealth fighters and a range of armoured vehicles will provide the UK with a flexible, agile and adaptable force to defend our interests at home and abroad.”
Defence Secretary Philip Hammond, is not surprisingly, more political than the general. He said:
“The savings that I have agreed will have no impact on military manpower or equipment. Our Armed Forces will continue to be backed by the fourth largest defence budget in the world and a programme of investment in state of the art equipment worth about £160 billion.
“By renegotiating contracts with industry and reforming the way we procure equipment, we will deliver hundreds millions of pounds worth of savings to reduce the country’s deficit without impacting on the Armed Forces’ ability to operate effectively.
“The ambitious and far-reaching reforms we began in 2010 have eliminated the £38 billion black hole inherited from Labour and balanced the defence budget for the first time in a generation. We are determined to ensure that the Armed Forces of the future have the resources they need to deliver our nation’s security.”
For anyone who wants to drill down into the minutiae of the spending review, here are all the relevant documents
The Chancellor told the governments of Scotland, Wales and Northern Ireland have to find resource savings of 2%, with a budget for Scotland of £25.7bn *Wales £13.6bn* and Northern Ireland £9.6bn.
Scotland, Wales and NI offices in London also have to savings of 10%.
Scotland will get new capital borrowing powers of almost £300m and the Police Service of Northern Ireland will get an additional £31m to help tackle terrorism.
William Higham of Save the Children sends Osborne a punchy message:
“Today’s Spending Review comes at an incredibly tough time for British families. Staff in our programmes throughout the UK are all hearing the same stories: families close to financial breaking point, parents working longer hours for less and those with the least being forced to cut back on food.
CRISIS has warned that requiring people to wait seven days before becoming eligible to claim benefits will cause needless hardship and homelessness, warns Crisis.
Leslie Morphy, chief executive of Crisis says:
Our clients already have to deal with long delays before benefit claims are processed, leaving them penniless in some cases.
Making people who lose their job or are on low wages ineligible to claim for a week on top of this will needlessly leave more people utterly destitute.
This arbitrary move will lead to debt, unheated rooms, unpaid rent, hunger and homelessness. A cruel and senseless measure and one we call on the government to reconsider.”
Juergen Maier, managing director of Siemens Industry, has found some reasons to cheer from the review but is not entirely convinced:
“We have been calling for greater investment in infrastructure, science and apprenticeships for some time – this will help not hinder growth, so this should be welcomed. I also welcome the increases research and development spend – but we what we need now is more clarity on where this investment will go. We need much more detail on the level and focus of investment in skills – as this is becoming ever more urgent.
“There were also some important gaps today – we need to hear more on the creation of a business bank, and the £2bn growth pot for LEP’s is much short of the £49bn Lord Heseltine and industry recommended. So more can be done to boost growth, which we know will bring down long term debt.”
John Cridland, CBI Director-General, said Osborne “has carefully walked a tightrope of protecting growth, while making sizeable savings to pay down the debt” but once again calls for the government to end its ring-fencing of the health, education and overseas aid budgets:
“Infrastructure is rightly singled out as the most effective engine for growth, as we urged. While the Government talks a good game on infrastructure we’ve seen too little delivery on the ground so far.
“It is critical we see a real pipeline of projects announced tomorrow, so investors know what schemes are going ahead, where and when.
“Other pro-growth areas including science, innovation, skills and exports have also been shielded from cuts. The £185m boost for the Technology Strategy Board – a crucial anchor for innovation – is particularly welcome.
“With stretched government finances it is tough but necessary to target automatic progression pay in the public sector. It is encouraging to see that Government will have greater control of the welfare budget through the new cap.
“The next big challenge to address is the issue of ring-fencing to ensure that efficiency flows across all parts of the public sector.”
Here are perhaps the most memorable quotes from both Osborne and Balls:
“And while we’re at it, we’ll make sure the site of the Battle of Waterloo is restored in time for the 200th anniversary, to commemorate those who died there and to celebrate a great victory of coalition forces over a discredited former regime that had impoverished millions.”
“Failed tests, broken promises – your friends call you George, the President calls you Jeffrey but to everyone else you are just Bungle … Even Zippy (pointing to David Cameron) on the frontbench can’t stop smiling