By Mark Smulian
12 May 2010
Public spending faces a £6bn cut in this financial year under the coalition government deal worked out by the Conservatives and Liberal Democrats.
The agreement said the two parties sought ‘a significantly accelerated reduction in the structural deficit over the course of a Parliament, with the main burden of deficit reduction borne by reduced spending rather than increased taxes’.
People on low incomes would be protected from ‘the effect of public sector pay constraint and other spending constraints’, it said.
An emergency Budget is due within 50 days. It will be based on forecasts from a new Office of Budget Responsibility, which will be independent from the Treasury.
The agreement described the planned cuts as ‘modest’ and affecting ‘ non-frontline services’.
They would also be subject to feasibility advice from the Treasury. In the autumn, a Spending Review will look at all government departments although it has been confirmed that NHS spending will rise in real terms each year and 0.7% of gross national income will be devoted to overseas aid.
Experts were divided on the impact of the £6bn extra cuts.
The Institute for Fiscal Studies said it was ‘clear the parties want to cut government borrowing earlier and more aggressively than the previous Labour government’, but ‘hard details’ would not come to light until Chancellor George Osborne gave his first Budget.
IFS director Robert Chote reiterated previous warnings that protecting spending on the NHS ‘suggests an intense squeeze on the budgets of other Whitehall departments’.
He added: ‘It also leaves open the option of tougher action to cut social security spending and does not rule out the possibility of significant net tax increases in the forthcoming Budget.’
John Sibson, head of government and public sector practice at PricewaterhouseCoopers, said: ‘The £6bn became the subject of great debate in the election, so I’m not surprised it’s there but it’s not clear what it’s a cut from. There are programmes going on to save money anyway, is it £6bn on top of that or not?’
But Colin Talbot, professor of public policy and management at Manchester Business School, warned that the scale of the cuts this year ‘could be just enough to tip the economy back into recession’.
He expected substantial reductions in spending on private consultants in addition to public sector job losses.
Alan Downey, KPMG’s UK head of public sector, said the country faced a deficit larger than that of Greece. ‘The absolute priority for the incoming administration must be to set out a clear, comprehensive and credible plan to plug the gaping hole in the public finances and give confidence to the financial markets,’ he said. ‘If we are to avoid swingeing cuts in frontline services, big and bold steps will be required.
‘We need to start planning for fundamental changes that will be painful, not least in terms of job losses, but which will enable the public sector to live within its means.’ This would include improved public sector productivity.
Ben Read, management economist at the Centre for Economics and Business Research, said the new Office of Budget Responsibility would produce more realistic forecasts than those of the Treasury. He predicted the new government would soon have to resort to an increase in value added tax.
The Cameron-Clegg coalition also promised a full review of local government finance, including ‘the radical devolution of power and greater financial autonomy to local government and community groups’, although details have yet to be fleshed out.
Anna Turley, acting director of the New Local Government Network, welcomed the move. ‘Given the way the Lyons Inquiry was pushed into the long grass, there may well be scepticism about commitment to fundamental reform, but we look forward to working with the new coalition government to resolve the current unsustainable system,’ she said.
12 May 2010
Public spending faces a £6bn cut in this financial year under the coalition government deal worked out by the Conservatives and Liberal Democrats.
The agreement said the two parties sought ‘a significantly accelerated reduction in the structural deficit over the course of a Parliament, with the main burden of deficit reduction borne by reduced spending rather than increased taxes’.
People on low incomes would be protected from ‘the effect of public sector pay constraint and other spending constraints’, it said.
An emergency Budget is due within 50 days. It will be based on forecasts from a new Office of Budget Responsibility, which will be independent from the Treasury.
The agreement described the planned cuts as ‘modest’ and affecting ‘ non-frontline services’.
They would also be subject to feasibility advice from the Treasury. In the autumn, a Spending Review will look at all government departments although it has been confirmed that NHS spending will rise in real terms each year and 0.7% of gross national income will be devoted to overseas aid.
Experts were divided on the impact of the £6bn extra cuts.
The Institute for Fiscal Studies said it was ‘clear the parties want to cut government borrowing earlier and more aggressively than the previous Labour government’, but ‘hard details’ would not come to light until Chancellor George Osborne gave his first Budget.
IFS director Robert Chote reiterated previous warnings that protecting spending on the NHS ‘suggests an intense squeeze on the budgets of other Whitehall departments’.
He added: ‘It also leaves open the option of tougher action to cut social security spending and does not rule out the possibility of significant net tax increases in the forthcoming Budget.’
John Sibson, head of government and public sector practice at PricewaterhouseCoopers, said: ‘The £6bn became the subject of great debate in the election, so I’m not surprised it’s there but it’s not clear what it’s a cut from. There are programmes going on to save money anyway, is it £6bn on top of that or not?’
But Colin Talbot, professor of public policy and management at Manchester Business School, warned that the scale of the cuts this year ‘could be just enough to tip the economy back into recession’.
He expected substantial reductions in spending on private consultants in addition to public sector job losses.
Alan Downey, KPMG’s UK head of public sector, said the country faced a deficit larger than that of Greece. ‘The absolute priority for the incoming administration must be to set out a clear, comprehensive and credible plan to plug the gaping hole in the public finances and give confidence to the financial markets,’ he said. ‘If we are to avoid swingeing cuts in frontline services, big and bold steps will be required.
‘We need to start planning for fundamental changes that will be painful, not least in terms of job losses, but which will enable the public sector to live within its means.’ This would include improved public sector productivity.
Ben Read, management economist at the Centre for Economics and Business Research, said the new Office of Budget Responsibility would produce more realistic forecasts than those of the Treasury. He predicted the new government would soon have to resort to an increase in value added tax.
The Cameron-Clegg coalition also promised a full review of local government finance, including ‘the radical devolution of power and greater financial autonomy to local government and community groups’, although details have yet to be fleshed out.
Anna Turley, acting director of the New Local Government Network, welcomed the move. ‘Given the way the Lyons Inquiry was pushed into the long grass, there may well be scepticism about commitment to fundamental reform, but we look forward to working with the new coalition government to resolve the current unsustainable system,’ she said.
