Treasury tells departments: cut 5pc to save for a rainy day fund

DEPARTMENTS will have to start saving their own reserve fund equal to five per cent of their spending, the Treasury will say today, forcing them to identify around £16bn in extra cuts to their day-to-day spending.

Chief secretary Danny Alexander will tell the Institute for Fiscal Studies today that it is time for “new and tougher rules around spending”.

The harsher rulebook aims to give chancellor George Osborne a more effective tool with which to rein in other ministers’ spending. Among its most important measures will be a demand that departments supply the Treasury with monthly internal costings for projects and services, rather than coming up with separate figures for external scrutiny.

Alexander will also say that departments must avoid tapping the Treasury’s “small” central reserve for unanticipated costs and instead put aside their own reserve, equal to five per cent of their total spending, or earmark cuts they could make. “Departments have to be able to deal with problems that arise from within their own budgets,” he will say.

The resulting cuts to everyday spending amount to £16bn of the total £322bn in departments’ resource spending forecast for this year and more in future years.

But the five per cent is likely to fall very unevenly, because some departments already put aside money for emergencies whereas others make no provisions.