Ministers are at loggerheads over who should bear the brunt of £10bn extra spending cuts. This outbreak of ‘fiscal nimbyism’ signals deep Cabinet tensions over protected and non-protected departments
A bitter struggle is going on within the Cabinet about the future of public expenditure. A group of ministers, led by home secretary Theresa May, justice secretary Chris Grayling and defence secretary Philip Hammond, are refusing to accept that their departments should face any additional spending reductions during the final year of this parliament.
The chancellor is, by all accounts, seeking a further £10 billion of cuts from departmental expenditure limits in 2015-16. As reported in this month's Public Finance, an outbreak of ‘fiscal nimbyism’ is reaching new heights ahead of the March 20 Budget.
Even Eric Pickles has joined the chorus of disapproval against simply cutting local government, the Home Office and defence still deeper. May, Hammond, Grayling and Pickles evidently believe the hitherto ‘protected’ departments should now be forced to share the public spending pain.
Since 2010, health and schools have faced a real terms standstill in their expenditure. International development has enjoyed major increases, albeit from a small base. Welfare spending, which is within the ‘annually managed’ part of the Treasury’s control system, has grown sharply – largely because pensions have been protected.
As a result of this relatively generous treatment of health, schools, international development and social security, spending cuts have had to be imposed on the remainder of state spending. Councils, the police, fire & emergencies and defence have felt the biggest impact. The challenge now facing chancellor George Osborne is that the government is fully committed to protect the NHS, parts of education, international development and pensions at least until the next parliament.
Indeed, it seems likely that the protection of the health service, schools and pensions will become the key battle-ground of the next general election. Could Labour imaginably go into a 2015 election saying anything other than that they would increase spending on these spheres of provision? By 2016-17, the NHS will have endured five years of zero growth. Labour will be under massive pressure to promise significant real terms rises. Could any party risk the wrath of pensioners, given how assiduously they vote?
Labour has criticised the government for cutting the deficit too quickly, and thus undermining growth. Inevitably, therefore, we can expect Ed Miliband to at least hint that a Labour government would push up public spending as part of a wider effort to expand the economy. The NHS, schools and welfare will be at the front of the queue for any subsequent real terms spending increases.
There is thus a real chance that the current ‘weather pattern’ for public expenditure priorities will remain in place till at least 2020. Unless, that is, the May-Hammond-Grayling-Pickles axis is successful in changing George Osborne’s approach.
Eric Pickles is a vital element in this line-up. No one can accuse him of failing to deliver aggressive public expenditure reductions. It would be very odd indeed if those ministers who had been most successful in achieving the government’s objectives were punished by being required to deliver even deeper cuts.
If Pickles and his colleagues are not successful, then local government, the police, fire & emergencies and parts of welfare face the real threat of budget reductions of three or four per cent per year all the way up to 2020. If that happens, the British state will have changed irrevocably.
