The Budget's great unloved

21 Mar 13

You wouldn't know it from the headline figures, but local government, along with some other unprotected and unloved public services, looks likely to face at least 50 per cent spending cuts between 2011-12 and 2017-2018

Table B.4 of the Budget Red Book points, like the Ghost of Christmas Yet to Come, towards a bleak terrain for unloved and unprotected public services.

‘Resource DEL including depreciation’ (broadly current expenditure) will be reduced by £3.8 billion in 2014-15 and £3.1 billion in 2015-16. However, the fall in 2016-17 is shown as £6.8 billion and in 2017-18 a further £8.2 billion.

This cut of £15 billion in the first two years of the next parliament was shown as only £12 billion as recently as the chancellor’s 2012 autumn statement.

Departmental Expenditure Limits (DEL) include current spending on the NHS, schools, international development, defence, police, fire and local government. For the foreseeable future, the NHS, schools, international development and defence equipment are protected from cuts.

As a result, any future reductions in DEL will fall disproportionately on the remaining services. This pattern of impacts was originally put in place in the chancellor’s 2010 spending review.

Over the full period from 2012-13 to 2017-18, ‘Resource DEL’ will drop sharply. Annually managed expenditure (AME), by contrast, will grow substantially. Unless this government or a different one after 2015 chooses to remove the ring-fences from the NHS, schools and the other protected services, the whole of this further cut in DEL will be borne by the minority of unprotected ones.

The government’s problem is that it wants to hold down Total Managed Expenditure but cannot control Annually Managed Expenditure, which largely consists of welfare, tax credits and debt interest. AME current expenditure will rise from £303 billion in 2010-11 to £414 billion in 2017-18.

DEL current spending, by contrast will drop from £326 billion to £299 billion in the same period. All these figures are in cash, so the real terms drop in DEL over this period will be close to 30 per cent.

Social security (with pensions as a major element) and debt interest are commanding a rapidly-growing share of total public expenditure. Within the declining share of DEL, the NHS, schools and international development are increasing as a proportion of the declining total.

With DEL current spending planned to decline to £299 billion by 2017-18, the unloved and unprotected, mostly local government, defence, the police, fire, transport, business services and justice face further cash spending reductions of 25 per cent in the next four to five years.

The unprotected services have become a safety-valve to allow AME and protected DEL to continue to grow within Total Managed Expenditure which is planned to fall in real terms. Over time, public resources will be further diverted from transport, housing, economic development, culture, the police and fire so as to continue to increase social security spending and debt servicing.

If capital spending becomes a greater priority, the impact on revenue spending within the unprotected part of DEL will be greater still.

It now seems likely that local government, along with some other un-ringfenced services, will face real terms reductions of at least 50 per cent in expenditure over the period 2011-12 to 2017-18.

If economic growth does not return in line with official forecasts, the chancellor would, if he is to continue to restrain the deficit, need to cut public expenditure to levels even below the figures announced yesterday. An historic change is under way which will radically alter the shape of the British state.

  • Tony Travers
    Tony Travers

    Tony Travers is Director of LSE London, a research centre at the London School of Economics. He is also a visiting professor in the LSE’s Government Department. His key research interests include local and regional government and public service reform. He has been a member of the Audit Commission, a King’s Fund associate and advisor to a number of Commons committees. Tony writes and broadcasts extensively on public finance, local government and policy issues.

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