The spending review did not end in the way most people expected. When Cameron’s top team gathered around the Chequers table on Sunday to tuck in to roast lamb and Yorkshire puddings, there was virtually no talk of squeezing out extra savings to balance the books. They had money to spare.
This was not the impression given to the rest of the cabinet, or indeed the BBC. But the truth was that the Treasury was sitting on a small cash-pile. After agreeing all the big budgets, there was £1bn or more left in the emergency fund for the quad — Cameron, Clegg, Osborne and Alexander — to distribute.
“They went from the horsemen of the apocalypse to Father Christmas overnight,” said one official close to the final days of the spending negotiation.
This back of the sofa discovery is a feature of spending rounds. The Treasury always set cautious targets so there is some flexibility at the end. But how Cameron handled the mini windfall is revealing. It gives us an insight into both his priorities and the methods he used to bluff the BBC into paying for the World Service.
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.
It is impossible to judge the defence review without seeing the full budget breakdown, available only to government officials. But even with the information we now have, it is pretty clear that some assumptions are incoherent. Some plans just don’t add up. The most obvious issues are with the shape of the army after 2015.
There may be big troop cuts hidden in this review that Cameron just didn’t want to mention.
1) The mystery of Britain’s 29,000 surplus troops in 2020
At the moment Britain’s 110,000 strong land forces can sustain a deployment of around 10,000. By 2020 this enduring deployment will fall to brigade level, which amounts to around 6,500 men.
This is basically an admission that we will be unable to sustain as big a role in the next Afghanistan or Iraq.
But more curious is the fact that we’re not cutting the land forces by as much as we’re cutting the deployments we expect them to sustain.
The “force generation” ratio — the proportion of troops to boots on the ground — will actually deteriorate over the next decade according to the defence review, even though Liam Fox has ordered a separate review on how to improve it.
It is now received wisdom in Westminster that Liam Fox emerged victorious from his battle with the Treasury over defence funding.
The official history has David Cameron making a last minute intervention to boost defence spending, particularly for the army. The Treasury were only able to secure cuts of around 8 per cent in real terms, rather than the 10 per cent cuts they were pushing for.
The alternative interpretation is that Fox was short-changed and that this will become clear in the months ahead. The argument runs in two parts:
The competition is fierce. But this must be a contender for the worst question ever asked — or should I say not asked — at a select committee hearing.
Just take a look at James Arbuthnot’s forensic examination of Liam Fox’s position on the withdrawal of troops from Afghanistan:
Last night’s Question Time ended on an extraordinary note. The public are more in favour of a hung parliament than the Tories care to admit. But I never expected an audience to heckle and boo Liam Fox when he warned of an indecisive election result triggering a run on sterling.
You can watch it here — the mob turn on Fox around 58 minutes in.