WELFARE spending faces the brunt of spending cuts over the next five years after it was announced the “roller coaster” ride that was anticipated for government departments will no longer happen.
However, the government surprised many economists by opting to slow pace of austerity overall, despite shaking off the Lib Dems, its old coalition partner.
The government’s fiscal watchdog, the Office for Budget Responsibility (OBR), said in March that if welfare spending was not reduced, heavy cuts would be needed in departmental spending to meet fiscal targets.
Departmental spending covers the day-to-day running and administration of the public sector – half of it is public workers’ pay.
The chancellor now plans to spend £83.3bn more on departmental spending over the next five years than was anticipated by the OBR in March. The harsh initial departmental cuts were then to be followed by sharp rises.
Welfare cuts will save £34.9m over this parliament. The chancellor has frozen most working-age benefits, reduced the generosity of tax credits and universal credit.
But its new giveaways will more than outweigh its new spending cuts. Borrowing over the next five years is set to be £18bn more than planned in March.
The government will only be borrowing less this year due to the sale of public sector assets.
“Having won a majority and cut loose the Lib Dems there was widespread speculation that George Osborne would bring forward austerity into the early years of this Parliament,” said economist David from investment bank Jefferies.
“However, painful welfare cuts are being phased in over more years and the profile for departmental spending has actually been revised higher.”