What to look out for in today’s spending review

OVERALL CUTS
• The chancellor is expected to announce real-terms cuts of 3.6 per cent to total public spending over four years.

• Because of interest payments on Britain’s debt pile, that will equate to an average 14 per cent cut for individual departments.

• Some departments, such as Health and Overseas Aid, have been ring-fenced, meaning their budgets won’t be cut.

• That leaves other departments facing real-terms cuts of 25 per cent over four years.

• But some departments such as Defence (which saw its budget cut by eight per cent yesterday) and Education will secure above-average settlements.

• The remaining departments are therefore likely to cut their budgets by around 35 per cent in real terms over four years, although this will vary case-by-case.

• Total spending in nominal or cash terms will continue to rise over the course of the parliament, from £696.8bn this year to £737.5bn by the end of the parliament in 2014-14.

WELFARE

• The chancellor could soften the pain of departmental cuts by making cuts to the welfare bill, something he did in his emergency Budget.

• He has already announced plans to axe child benefit for higher rate taxpayers, saving around £1bn a year.

• The Treasury has also refused to deny that it is planning to abolish child benefit
for children over 16.

• Other options, such as means-testing jobseekers’ allowance, are also under consideration.

• The chancellor is more likely to take benefits away from those in households where at least one earner is on the higher 40 or 50 per cent rate of tax in a bid to prove the spending review is “fair”.

CAPITAL SPENDING

• Spending on capital projects like roads and transport is expected to fall from £68.7bn to £45bn in 2014-15, although the government could make less severe cuts in a bid to protect spending that will support growth.

RE-PROFILING

• There has been much talk of “re-profiling” the cuts, essentially delaying them until later in the parliament or until economic growth is stronger.

• The Treasury has denied that it is planning to alter the pace of fiscal tightening, but has admitted there could be some “marginal” revisions due to the cost of redundancy payoffs and break fees on government contracts.

• Key to this is the amount the chancellor hopes to cut spending by in 2011-12. In his June Budget he said he would achieve total cuts of £23bn in real-terms. A significantly lower number, alongside a higher target near the end of the parliament, would suggest he is putting off tough decisions. ?