Spending cuts announced

Today the Chancellor of the Exchequer, George Osborne, and Chief Secretary to the Treasury, David Laws, announced the details of £6.2bn of savings from Government spending in 2010-11 to tackle the £156bn deficit.

Outside of Local Government and the Devolved Administrations, the savings are allocated across different areas as follows:

• £1.15bn in discretionary areas like consultancy and travel costs;
• £95m through savings in IT spending;
• £1.7bn from delaying and stopping contracts and projects, including immediate negotiations to achieve cost reductions from the major suppliers to government;
• £170m from reductions in property costs;
• at least £120m from a recruitment freeze across the civil service for the rest of 2010-11;
• £600m from cutting the cost of quangos; and
• £520m by reducing other lower value spend.

In addition, £1.165bn of savings will be made in Local Government by reducing grants to Local Authorites to reflect their contribution to the £6.2bn. The Government will also remove the ringfences around over £1.7bn of grants to local authorities in 2010-11, to give them greater flexibility to re-shape their budgets and find savings in the areas set out above.

As announced a week ago, the Devolved Administrations will have the option of making savings this year or deferring their share of the savings, which totals £704m, until the next financial year.

As well as savings from waste and efficiency, including £10m from cracking down on first class travel and £5m from restricting ministerial entitlement to a dedicated car and driver, specific low value programs included in the above list include:

• £320m from reducing and then stopping government contributions to the Child Trust Fund.  The Government intends to introduce legislation to scale back payments from August this year and then stop payments from 1 January 2011;
• £150m from savings in the last Government’s housing pledge;
• £320m from ending elements of employment programmes, including ending further rollout of temporary jobs through the Young Person’s Guarantee (the ‘Future Jobs Fund’) and removing recruitment subsidies from the ‘Six-Month Offer’;
• £270m from ending lower value RDA spending; and
  
• £80m from closing the British Educational Communications and Technology Agency (BECTA) and other savings in Department for Education quangos.

In addition to these savings, the Chief Secretary to the Treasury and Secretaries of State across Whitehall are currently undertaking a re-examination of all spending approvals made since 1 January 2010, to ensure that they are consistent with the Government’s priorities of good value for money

Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD), said:

“The Chancellor and Chief Secretary have made sensible decisions on where and by how much to cut public spending. Quangos, IT, consultancy, advertising and property have long been ripe for cuts. It also makes sense to reduce less effective forms of spending by Regional Development Agencies and spending on those training and employment measures found to offer a poor return to the taxpayer. Freezing civil service recruitment is likewise the least painful way to start to reduce public sector employment. Yet while the scalpel has been applied with considerable skill, one must nonetheless question whether now is the right time to begin major surgery on the UK’s fiscal deficit.

“Although the Treasury document makes no explicit reference to the impact of today’s package of cuts on public sector employment, the combination of a civil service recruitment freeze and reduced spending in other areas is likely to reduce total public sector employment by around 50,000 in the current financial year. In addition there will be knock-on effects into the private sector on businesses that undertake contract work for the central and local government and other public bodies, plus the wider impact on demand for labour in the economy as a whole resulting from lower net public spending of around £6bn. Given the current weak state of the labour market this is likely to have a detrimental impact on unemployment.

“Ministers clearly consider the risk of failing to take immediate steps to cut the fiscal deficit outweighs that of starting to cut too soon, citing the sovereign debt crisis in the eurozone in support of their view. Whether they are overstating their case is a moot point – given the importance of the eurozone for UK exports, economic weakness across the channel should arguably make policy makers in this country more rather than less cautious about curbing demand. But either way, Messrs Osborne and Laws could be taking a risk with UK unemployment. Though they no longer dare say it, higher unemployment may be once again considered a price worth paying.”