Before the spending round announcement was made (full document here), we knew broadly that Osborne would be looking to make £11.5bn of cuts with an average budget reduction of eight per cent across all departments – with the exception of healthcare, school and international aid.
We were fairly certain that Lord Heseltine’s single local growth fund – which he said would decentralise spending and boost growth outside London – would not get the devolution of £70bn support funding over four years called for. Expectations were for a sum of £2bn to £3bn, with a final outcome of £2bn.
We also knew that the government would be investing heavily in infrastructure. Osborne said he would be committing £50bn to capital spending for 2015/16, bringing total capital spend to £300bn for the end of the decade. Investment in roads will be at its largest scale for 50 years, and spending on railways will be the biggest since the Victorian age.
The chancellor also announced some key reforms to the welfare system including a system-wide cap (not including pensions) and tougher criteria for claiming jobseekers' allowance (including a requirement for non-English speakers to take language courses).
As expected, there were ringfences around defence (budget maintained at £24bn, with cuts to civilian workforce funding spending increases on cyber warfare and intelligence), international aid, healthcare (NHS budget up 2.5 per cent in real terms to £110bn) and schools (budget up to £53bn with funding for a further 180 free schools). The police counter terrorism unit will also be protected.
Although when it came to the NHS, Osborne had a few tricks up his sleeve.
Social care services worth £3bn currently commissioned by councils will be done by NHS. neat trick to get around promise of ringfencing NHS.— Jim Waterson (@jimwaterson) June 26, 2013
A significant £5bn of the cuts will come from efficiency savings in the public sector, achieved through a £1.9bn cut in departmental administration budgets, £1.5bn from scaling back or stopping non-priority projects, £1bn from streamlining the way it purchases goods and services, 144,000 job cuts, and a number of pay reforms including a one per cent cap on pay rises and the abolishment of automatic pay progression (excluding the armed services).
By department, the cuts will be as follows:
Business: 6 per cent
Cabinet Office: 10 per cent
Communities and local government: 10 per cent
Culture, media and sport: 7 per cent
Defence: 1.9 per cent
DEFRA: 10 per cent
FCO: 8 per cent
Home Office: 6 per cent
Justice: 10 per cent
Transport: 9 per cent
Treasury: 10 per cent
Work and pensions: 9.5 per cent
Commenting on the spending round overall, chief executive of the TaxPayers' Alliance Matthew Sinclair said:
The Chancellor has announced some welcome savings which will ease the pressure on taxpayers now and in the future, including some sensible changes to the welfare system and an attempt to end the absurdity of pensioners on the Costa del Sol getting the Winter Fuel Payment. Tens of billions of pounds are still being wasted by bloated bureaucracies each year, so there is plenty of room for further cuts. Unfortunately Mr Osborne is still boasting about squandering enormous amounts on foreign aid and vanity projects in the energy sector, while other developed economies are showing more restraint.
How budgets have been allocated:
Source: HM Treasury