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‘………………By Patrick Wintour Political editor
Spending review on 23 November is expected to shift funding away from education and economic development, within overall cuts to state budget
George Osborne’s decade-long redesign of the British state will result in 44% of state spending going on health and elderly people, the highest proportion since comparable records began in the 1990s.
As the chancellor hailed the first decisions in the forthcoming spending review, new research from a thinktank reveals how these two areas increasingly dominate public finances, having risen by a quarter in the past decade.
The shifts reflect the Conservatives’ twin decisions since taking office in 2010 to cut back state spending overall, while protecting pensioners and health spending over a decade in which the population is ageing and greater demands are placed on the health service.
Meanwhile, the share of overall state spending that goes on education and economic development, including house building, is set to fall by around one fifth over the same period to 19% – its lowest share since comparable data began in 1997.
“The move towards health – and away from areas such as post-16 education and research and development – raises questions about the future role of the state in boosting productivity and supporting young adults,” concludes the thinktank, which is chaired by former Tory universities minister David Willetts.
Osborne announced on Monday that four government departments had reached agreement with him for a further 30% of cuts. But the four government departments – the Treasury itself and the departments for communities, environment and transport – all have very small current budgets.
The chancellor said the spending review, due to be announced on 23 November, was going according to plan and was the easiest of the three spending reviews he had conducted as chancellor of the exchequer. By the end of the parliament, the government is expected to run a budget surplus.
Osborne insisted the government “must hold its nerve” in its first spending review conducted by the Conservatives without the Liberal Democrats beside them in government. “Quite frankly, if we are not into surplus after 10 full years of economic growth, when will we ever be?,” he said.
But there are growing signs that the Treasury is facing resistance as big Whitehall departments and local government leaders urge him to find extra sources of government revenue or delay his plan to achieve an overall surplus by 2019-20.
There are numerous signs of pressure:
- The head of NHS England, Simon Stevens, warned that its promised extra cash will have to be front loaded in 2016-17 and 2017-18 to fill a budget shortfall despite NHS protection from real-terms cuts. Stevens warned that the comprehensive spending review may not provide a “workable” solution for the NHS, even though ministers have pledged to increase the health service’s annual budget by £8bn a year by 2020.
- The Conservative-led leadership of the Local Government Association said if the scale of the cuts agreed by the Department of Communities to its own budget were imposed on core council funding, local authorities in England and Wales faced £16.5bn in funding reductions and increased cost pressures by the end of the decade, leading to further inevitable cuts to social care.
- The Home Office was forced to abandon plans to introduce a new police funding formula, due to be implemented as part of the spending review, throwing calculations on future police budgets into chaos. It adds to the likelihood that the Home Office’s plans to enforce massive police force cuts will prompt a legal challenge by police commissioners.
- Osborne was forced to deny reports that he was arguing bitterly with the work and pensions secretary, Iain Duncan Smith, over plans to fund a U-turn over tax credits by cutting the generosity of universal credit.
Former senior diplomats urged that the Foreign Office should be protected from cuts by giving it greater access to the overseas aid budget. Osborne promised extra spending for the security services likely to lead to an extra 1,000 staff in the three security agencies by the end of this parliament.
The Resolution Foundation calculates that, from 2010 to 2019, the budgets for current spending will have been cut by 75% at the Department of Transport, by 64% at the Department for Communities and Local Government and by 53% at the Department for Business. Capital spending is not included in the calculations.
By contrast, the NHS budget will have risen by 14% over the same period and the international development budget increased by 40%.
The thinktank questioned whether politicians had thought sufficiently about the reshaping of the state brought about by the mix of cuts and the protections provided to specific departments and age groups.
The foundation said: “While the focus of the autumn statement will largely be on how the pain of spending cuts has been spread around departments – as well as any changes to tax credit reforms – it’s important to step back and consider what the chancellor’s plan means for the long-term role of the state and the support it provides across different parts of the population”.
The thinktank found a growing generational divide since the financial crash, with average spending per head set to fall by 7% for children and 9% among working age adults.
In contrast, spending per capita on older people will rise by about 19% over the same period. By the end of this decade, spending on the state pension will account for more than half of all welfare spending. This is despite the big shift in welfare spending towards pensioners being cushioned to some extent by significant increases in the state pension age since 2010, culminating in a rise to 66 for men and women in 2020.
Continued demographic changes post-2020 are likely to exacerbate the shift in welfare spending towards elderly people. ……………….’