Comprehensive Spending Review – 20 October 2010

This is to be the worst of times in the hope of a return to the best of times. The long awaited Comprehensive Spending Review was as brutal as the Coalition Government had prepared us for: £83 billion worth of cuts.

Let the John Redwoods of this life point out that in cash terms public spending is still rising. Over the next four years it won’t feel like that with an estimated half a million public sector jobs to go.

The Chancellor – with business backing – claims that this is the medicine Britain needs. Labour have bet their economic credibility on the cuts being too fast and too deep and halting the recovery. Outwith that domestic political split, there is another context in which this should all be seen and another voice heard.

This week, Mervyn King, the Governor of the Bank of England, warned that a failure to agree a common path globally on how economies are re-balanced could lead to a decline in world output and a 1930s style global depression.

George Osborne’s plans must be seen in this context. The UK economy does not function on its own and whether this plan works or not will as much be influenced by global pressures as domestic concerns.

The USA, which is still pursuing the path of stimulus, is in direct opposition to China on currency policy and that disagreement is replicated all over the globe.

This is a roller coaster ride on a sharp downward incline with no one really certain when the car will start to lift again.

If global conditions do not improve, the UK will not be able to expect the level of growth which will make up for the cuts in government spending to re-build the economy, or bring in the necessary revenues to cut borrowing.

What can be said for definite then?

As we knew from the time of the Emergency Budget in June, bond markets will be calmed by the Government’s determination to drive down debt.

But the Government’s belief that the private sector will grow to fill the gaps in the economy left by cuts in public spending will be severely tested over the next few years.

Indeed Price Waterhouse Cooper’s estimate that the cuts could cost another 500,000 private sector jobs as well.

And the welfare changes – with cuts of £7 billion - ensure that the next few years will be no time to be on the dole, particularly if you are poor. Greater incentives to get into employment will only work if there are jobs to be filled.

The worst of times, in the hope of the best of times, to paraphrase Dickens. And in time we will find out the truth of the next clause in that famous quotation: whether this is the age of wisdom – or the age of foolishness.

View headline announcements below or click for science, health, financial & professional services or food & drink

Headline Announcements

Economy, Business and Banking

  • The structural deficit is to be eliminated by 2015.
  • The Department for Business, Innovation and Skills will see its budget cut by 7.1% via the reduction of administrative costs, the axing of quangos and a review of university funding.
  • The Treasury’s budget will be cut by 33%, with HMRC budget savings of 15%.
  • The science budget will be frozen rather than cut, remaining at £4.6bn a year.
  • Legislation on a permanent bank levy will be published on Thursday 21 October.
  • There will be an Equitable Life payout to former policyholders that will total £1.5bn.
  • £1bn will be set aside for the green investment bank, while additional funds will be invested in initiatives to help rebalance the economy and end overdependence on financial services.
  • An extra £900m has been made available to target tax evasion and fraud, and is expected to generate £7bn.

 

Public Sector Spending

  • Total departmental spending cuts will average out at 19% over four years. Notably, the Foreign Office has been earmarked for a 24% budget cut, while the Department of Culture, Media and Sport will see administrative costs reduced by 41%.
  • There are expected to be approximately 490,000 public sector job losses.
  • Royal household spending will be down 14% over a four year period.
  • £6bn of efficiency savings will be made across Whitehall, while overall savings in council funding will be made to the tune of 7.1% over four years.
  • Final salary pensions for MPs will come to an end and public sector pension contributions will rise.

 

Welfare and Pensions

  • Welfare budget savings will equate to £7bn a year on top of the £11bn announced in the Emergency Budget in June. The extra money saved will be used to make the average departmental cuts less severe.
  • An extra £4.4bn of capital for social housing was announced, while the cold weather payments introduced by the previous government will be made permanent.
  • Child tax credit is set to rise by £30 next year and an extra £2bn will be made available to implement a universal credit system.
  • The state pension age for men and women will rise from 65 to 66 by 2020, saving over £5bn a year.

 

Health

  • The NHS will see a marginal real-terms increase in funding every year, fulfilling a Conservative election pledge.
  • The NHS budget in England will increase to £114.4 billion by 2014-15.
  • The Government is still committed to achieving £20 billion of annual efficiency savings in the NHS in England by the end of the period.
  • Free eye tests and prescriptions for pensioners are set to remain.

 

Justice and Home Affairs

  • The Home Office budget will be subject to savings of 6% a year, while the Ministry of Justice’s budget will fall to £7bn a year by the end of 2014/15.
  • Police spending will fall by 4% each year.

 

Transport

  • £30bn worth of investment will be made in transport projects over four years, including £500m earmarked for the Tyne and Wear Metro.
  • The M25 motorway will be widened, and the Crossrail train line project will go ahead.
  • Free bus passes for pensioners will remain.

 

Education and skills

  • The schools budget will rise by £4bn to £39bn by 2015.
  • Extra places in education are to be made available for 16 to 19-year-olds.
  • £15.8bn will be spent to maintain the school estate and rebuild and refurbish 600 schools.
  • A new £2.5bn pupil premium will be introduced to support the education of disadvantaged children.

 

Defence

  • The Ministry of Defence’s budget will be cut by 8% to £33.5bn in 2014/15.
  • There will be significant job losses over the next four years, with the RAF and navy standing to lose 5000 jobs, the Army set to lose 7000 jobs, and the Ministry of Defence to cut 25,000 civilian staff.
  • Key spending decisions on Trident to be delayed until 2016.

 

If you would like further information or would like to discuss the impact of the CSR on your business and communications, please contact:

 

Jason Frayne, 07766 246 841, jason.frayne@hillandknowlton.com