Spending Review

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There were some familiar themes to the Spending Review statment today. The Chancellor began his speech on 2015/16 spending by sticking to the same broad principles as the review in 2010 - Reform, Fairness and Growth. We also know from the Budget earlier in the year the magnitude of savings that the Review would seek to deliver in the last year of this parliament - £11.5bn.

So today was, therefore, mainly about where the savings would come from and, importantly what reprioritisation of resources we might in support of better balanced economic growth.

Spending Review in a few figures

  • 2.7% real terms cut in Department budgets 2014/15-2015/16
  • Gross investment at £50bn - down in real terms from 2014/15
  • Further welfare savings of £640m in 2015/16
  • Total government spending £745bn in 2015/16 - 1 percentage point of GDP lower than 2014/15

EEF's submission ahead of the review set out the need for the Chancellor to get the biggest growth dividend from the total spending envelope in 2015/16.

Here are our recommendations and what was announced today:

Overall, not a bad outcome given this takes the UK into year six of austerity. The government has prioritised spending in the areas that will deliver a greater growth dividend. Investing in science and innovation, skills and export promotion is critical to create a strong more balanced economy.

However, if this has been the usual three year spending review, the overall picture may have looked quite different with cuts set to continue into the next parliament. When we get to that a different appraoch will be needed - no area of spending will have a free pass, the other side of the fiscal coin, tax, is also likely to be on the table and there will need to be a more fundamental rethink on what government should and shouldn't be funding.

In the meantime there will need to be some light shone on a couple of outstanding issues in the coming days

  1. How much of a boost will infrastructure spending give the economy and when and will the Growth Implementation Committee be overseeing delivery?
  2. How will be £2bn for LEPs be deployed and for what?
  3. Have all recommendations from 'No Stone Unturned' now been actioned?

Author

Chief Economist

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