IFS: Spending Review could cut unprotected budgets by 27%

2 Oct 15

Unprotected Whitehall spending in areas such as local government could be cut by around 27% in the forthcoming Spending Review, an analysis by the Institute for Fiscal Studies has found.

Analysing the likely impact of the announcement on 25 November, the think-tank noted George Osborne’s summer Budget implied departmental spending would be cut by £11.3bn, or 3.2%, in real terms between 2015/16 and 2019/20.

However capital spending is predicted to rise by £4.9bn (11.5%), meaning that day-to-day spending across all departments will need to fall by £16.2bn (5.1%) to meet this target.

Within this, ministers have already pledged to increase spending in real terms on the NHS, the Ministry of Defence and international aid, and to protect revenue spending in schools.

These protections amount to around £7.6bn by 2019/20, the IFS found. Once the share of this spending given to devolved administrations under the Barnett Formula is accounted for, unprotected areas face revenue reductions of 27% from 2015/16 to 2019/20. As well as local government spending, this includes departments such as the Home Office and the Department for Business, Innovation and Skills.

Over the period of the three spending rounds undertaken by Osborne, the total real-terms cuts to unprotected departments will be around 50%, senior research economist Rowena Crawford said.

However, in practice, some departments would be expected to fare better than this and others worse, as the cuts may not be introduced uniformly, she highlighted.

"This parliament will be one of continued belt tightening for many government departments. We already know there will be significant further spending cuts: the chancellor has asked unprotected departments to model cuts to day-to-day spending of 25% and 40% over the next four years.

“What remains to be seen is which departments he decides must deliver these cuts and what the resulting impact on the quality of public services will be."

Alongside today’s briefing note, the IFS has also launched an online calculator that shows the different spending choices faced by the Osborne to meet his target.

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