Those incredible spending cuts continued…

Ben Chu

What level of cuts to public services are credible?

I wrote about this subject in my column in the Sindy, see here.

My main point was that, under the Treasury’s baseline scenario (absent welfare cuts or tax rises and to achieve a budget surplus in 2018/19), spending cuts are set to step up quite dramatically during the next Parliament.

This chart from the Office for Budget Responsibility shows that clearly:

OBR Those incredible spending cuts continued...

Average annual real cuts in RDEL (which is essentially day-to-day spending) will contract by 2.6% a year on average over the four years to 2015-16. But the pace picks up considerably in the following three years (5%, 5.2%, 3%).

But what if the inflation ring fence remains around health, education, and international development (meaning that those departments would experience no real terms cuts)?

The Institute for Fiscal Studies produced this useful chart in its February Green Budget:

IFS1 Those incredible spending cuts continued...

This shows the pace of cuts to unprotected departments rising from 4% a year to 7%.

Giles Wilkes, Vince Cable’s former special adviser, has done some further calculations.

He looks at what happens if defence spending and spending on the devolved regions were also to be kept flat in cash terms:

giles1 Those incredible spending cuts continued...

What  this shows is that the rest of Whitehall would be facing average annual cuts of more than 20% a year in the three years after 2015-16.

As I said in the article: jaw-dropping.

Actually it gets even worse. Giles’ calculations are in nominal terms.

I’ve looked at what happens if one adjusts those calculations for expected economy-wide inflation. And what one finds is that the collective day-to-day spending of all those other departments – Business, Home Office, Justice, Environment, Culture etc – would fall from £94.6bn in 2011/12 to just £29.7bn in 2018/19 (in 2011/12 prices). That’s a real terms cut of 70%.

This chart shows the drop:

me Those incredible spending cuts continued...

The dotted lines show the implied forecast after 2015-16.

This incredible picture could, of course, change if taxes rise, welfare is cut, the ring-fence is breached, or the next government chooses not to aim for a 2018/19 budget surplus. Even George Osborne has said his preference would be for £12bn of extra welfare cuts by 2018-19 to prevent that dotted orange line falling so rapidly in the next Parliament.

One thing is for sure: something has to give.

  • Steve Cheney

    Will freely admit, I was being a bit polemic for the sake of it, purely because of how relentlessly pro-old/anti-youth the rhetoric on this seems to be.

    Regarding pensions, the stats are and always will be available. Anyone who chooses to find out what proportion of welfare spending is pensions rather than, say, Job Seekers Allowance, can do that whenever. The reason they are lumped together is welfare is, quite simply, people don’t hear the word “welfare” and think “pensions”. So they see the welfare bill, and they don’t care to find out that the majority of it goes to pensioners and only a few percent goes to the unemployed. This is down to presentation – people who look for the data will find it, so the important thing is to encourage laziness and convince them that there’d be nothing to find if they did.

    I don’t think that raising the pension age is “pulling the rug out” from under anyone necessarily. Admittedly, the fact that successive governments have left it for someone else to do means that saying, for example, “everyone born after x year has to retire a bit later”, is more difficult – because in order to be meaningful, you have to tell older and older people that they’ll have to work longer. If we’d started raising the pension age decades ago, we could have done it incrementally, so that people know when they’re due to retire when they enter the workforce and it doesn’t change.

    But really, I don’t believe they can’t do anything. I’m 31; if someone told me that I’ll have to retire at 66 rather than 65, that’s 35 years rather than 34. I barely think one week ahead, so it’d not going to get me all outraged that I’m being worked til I drop.

    Annoyingly that *is* the language that’s used – people talk about ANY increase in pension age in terms of “working you til you drop” – apparently oblivious to the fact that, actually, that’s what happened before, when the pension age was much closer to the average life expectancy. People don’t “work til they drop” now, and raising the age form 65 to 67 or 68 or 70 wouldn’t really change that – it just means that they’d be getting 20-30 years to claim their pension rather than 25-35.

    This is what I mean about the elderly being a bit spoilt. I’m not saying “pensioners need to tighten their belts”. What I *am* saying is “pensioners need to accept that they can’t just keep demanding everyone else lose privileges just to protect theirs”. Pensioners traditionally vote for the parties that are least likely to raise revenue, while taking more and more of that revenue themselves. I find it hard to think of that as anything other than selfishness.

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