Fiscal squeeze means hard spending choices ahead

1 Feb 07
The scale of the impending cutbacks in public spending have been starkly illustrated this week as independent experts warned that the government will have to choose between cutting child poverty and improving public services.

02 February 2007

The scale of the impending cutbacks in public spending have been starkly illustrated this week as independent experts warned that the government will have to choose between cutting child poverty and improving public services.

The Institute for Fiscal Studies painted a bleak future as it launched its annual 'Green Budget' on January 31.

It warned that this year's Comprehensive Spending Review, which will set out the government's spending plans until 2011, will be the 'tightest squeeze' since the Tories' spending plans expired in 1999.

The think-tank concluded that, if the Treasury wants to stay within the spending limits it has already outlined of 1.9% real-terms' growth per year between 2008 and 2011, it will have to decide which of its pledges to meet.

The government is committed to halving child poverty by 2010, which the IFS estimates will cost £4.5bn, while continuing to invest in the NHS and education.

But according to the IFS's analysis, when existing spending commitments and the CSR settlements already announced for various departments are taken into account, funding the child poverty commitment would leave just 3.3% annual real-terms growth to be split between health and education.

This increase, which is far below the funding settlements of recent years, is based on the assumption that spending in other areas, such as defence, would be frozen.

If the government prioritised health and education and did not allocate resources to child poverty, those two areas would still have to share an annual increase of just 4.1%.

Gemma Tetlow, a research economist at the IFS, said: '[Chancellor Gordon] Brown's most likely strategy may be to focus limited resources on health and education, and to put off the tax credit increases necessary to help reduce child poverty to the target until later Budgets and Pre-Budget Reports, in the hope that revenues come in more strongly than expected.'

But the Treasury flatly rejected the institute's findings. A spokesman said: 'We do not recognise the IFS projections about spending. The Comprehensive Spending Review will set out the government's plan for spending, which will continue to build on the record investments already made in public services.'

In spite of this denial, chief secretary to the Treasury Stephen Timms repeatedly emphasised the need for spending restraint during a hearing of the Commons Treasury select committee on January 30.

Giving evidence on the Treasury's preparations for the CSR, Timms told MPs that the next spending period would be 'one of consolidation, where the rate of growth will slow'.

But he rejected suggestions by committee members that these reductions, along with the efficiency savings outlined in the Pre-Budget Report, would reverse the improvements to public services seen in recent years.

Timms instead signalled the government's intention to up the stakes on efficiency, vowing that the CSR would include a move to regional pay negotiations for public sector workers. 'Pay that responds to local conditions is good for economic development,' he said.

When asked about the likely timing of the CSR announcement, Timms surprised MPs by saying only that it would happen 'by October'. He refused to give any assurances that it would happen before Parliament's summer recess, despite committee members pointing out that an autumn announcement would leave little time for debate.

During the session the minister also announced the publication of an updated version of the National Asset Register, which lists all government-owned property. The register valued the total estate, which includes such items as the Bank of England's Threadneedle Street headquarters, at £295bn.

Timms said it would be an important part of the CSR as departments strive to manage their assets better to wring maximum value for money from them.

PFfeb2007

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