George Osborne has made a pragmatic decision to focus on reductions in welfare payments should the Conservatives get elected in 2015. It would simply be unrealistic to try to find further cuts from Whitehall departments
We already knew that the government was planning further deep cuts in spending in the next parliament, so the figure of £60bn over four years that the Chancellor quoted in his speech today is nothing new.
But while we had detailed information about how the cuts would play out up to the end of the first year of the new parliament, until today we had heard very little about how the cuts were likely to be distributed beyond that. This was particularly important because the worst of the cuts to government spending are due to fall in the next parliament.
As it was, today’s speech continued the narrative that the chancellor set out in his Autumn Statement in suggesting that there will be a much greater focus on welfare going forwards. This represents a major change compared with the current parliament where government departments have borne the brunt of the cuts.
There are obvious political factors behind this change of tack and it fits nicely alongside the messages that the chancellor would like to develop in the run-up to the election. But it is also a pragmatic decision.
By 2015-16 the share of government spending accounted for by Whitehall departments is due to be just 47% – well below the 55% that the government inherited in 2010.
Almost all departments have endured swingeing cuts to their budgets, some more than 30% in real terms up to 2015-16. These cuts have been so great that it would be very difficult for the departments to achieve any further significant savings, particularly if the government were to continue to protect health and large parts of education.
With this in mind it was inevitable that the chancellor would have to look at these other areas of spending which, thus far, have seen very little action.
Andrew Goodwin is senior economic adviser to the EY Item Club
