Those incredible spending cuts continued…
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:
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:
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:
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:
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.
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