Political rhetoric in the Budget masks a challenging Spending Review

31 Oct 18

The disconnect between the rhetoric of ‘ending austerity’ and current spending plans will make next year’s Spending Review harder than it needs to be, argues the IfG’s Graham Atkins.

Significant progress has been made in implementing the government’s financial management review, but the Treasury and chancellor Philip Hammond need to build on what has been achieved to date

 

Despite a raft of minor measures, the government hasn’t ended austerity for public services.

On Monday, the chancellor, Phillip Hammond, opened his red box and said that “austerity is coming to an end”.

These increased expectations will feed into the upcoming Spending Review – the public will expect better services, and departments will expect to have the resources to deliver.

But excluding the NHS, the OBR forecast only a minor increase in day-to-day spending per person for other departments next year, and declines after 2019/20. Given that demands on most public services have risen faster than population growth over the last eight years, flat real-terms spending per person will equate to a spending squeeze for most public services.

Emergency cash injections might solve short-term political problems, but not operational ones

The chancellor did announce a raft of short-term spending increases in other services, which amounted to £1.5bn in 2018/19 and £1.6bn in 2019/20. But these were not targeted at the biggest pressure points.

The £500m for schools’ capital this year was far below the Department for Education’s own figures for the cost to return all school buildings to satisfactory or better condition, which it estimates to cost £6.7bn. Nicer buildings will also not address schools’ bigger challenge – teacher recruitment and retention.

Councils also received some money – to fix potholes and plug some financial gaps in social care.  But they did not receive what they really need: certainty over their overall medium-term financial position.  There is still no confirmed date for the social care green paper. The money allocated for the next two years can’t be used do much more than paper over the cracks – in some cases, literally.

These cash injections might have done the chancellor some good politically – in the short term. But they will not make much of a dent in the biggest challenges facing public services.

The disconnect between political rhetoric and spending plans will make the 2019 Spending Review harder than it needs to be

What does all this mean? The biggest challenges facing schools, prisons, and social care will probably still be there in 2019 – but there will not, according to current policy, be any more money to fix them.  

Hammond doubled down on this approach explicitly – saying that ending austerity “does not involve increasing people’s tax bills”. The chancellor has increased expectations, but without a plan to raise the revenue to deliver on them.

He cannot hope that further efficiencies will be enough to get him out of this tight spot. There are of course places where public money could be spent more efficiently – but our analysis shows that these will be hard to find.

His alternatives are to cut services, or to ask people to contribute more outside of the tax system –  through charges, for example. Neither of these feel like the end of austerity.

These conundrums will make it incredibly challenging to make, justify and stick to the choices the government makes in the 2019 Spending Review.

The government is setting itself up to repeat the failings of the 2015 review - which has been revised multiple times to inject emergency cash in services from hospitals to schools to social care. This money has helped, but by reacting to immediate symptoms, it has not addressed the actual problems services face.

To avoid replicating the shortcomings of 2015, the government must bridge the gap between its rhetoric and its actual spending plans.

Monday’s Budget has made that task even harder.

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