Later this month the Chancellor will announce spending plans for the remainder of this parliament and today EEF set out what it thinks the prioirities for spending in 2015/16 and how those decisions should be approached.
Here the story in graphs.
Departmental Spending will feel the squeeze
- Total government spending will continue to rise over the period, reaching £745 billion in 2015/16.
- Spending is split between Departments (DEL) and spending that is managed annually (AME). The latter includes debt interest and welfare.
- The cuts will fall on DEL, which will fall by 1% in real terms between 2014/15 and 2015/16
Source: HM Treasury
Cuts will not be distributed evenly
- Since the 2010 Spending Review there has been a commitment to maintain real terms increases across some areas of spending, namely health and schools, and with BIS, science.
- The UK has an international agreement to increase Overseas Development spending to 0.7% of GDP
- At Budget 2013 government committed to keep ringfences around health and schools spending.
- On current plans this will leave unprotected departments (accounting for just over half of DEL) carrying the cuts.
- These will come on top of the cuts that have already been implemented since 2010.
Source EEF calculations and IFS
The context of further cuts is a challenging growth environment
- Growth has fallen short over the current Spending Review period, with implications for borrowing.
- As further reductions in government spending will act as a drag on growth, spending must continued to be geared towards growth.
- On current projections, cuts will need to continue beyond the 2015/16.
The approach to ring-fencing a large proportion of Department spending is limiting government's ability to use the full options available to it within its fiscal framework to prioritise the areas of spending that would support stronger economic growth.
There needs to be greater investment in infrastructure - this can be achieved by either further reprioritisation or higher borrowing, both of which have implications for public finances. Given that the government has committed to the current spending and consolidation path, this leaves further reprioritisation.
The case, therefore, for maintaining Government ring fences, particularly the health sector ring fences, while the remaining departmental spending limits are subject to significant cuts is relatively weak. The Spending Review should remove the ring-fence from health spending to facilitate a shift towards more growth-enhancing expenditure including capital spending.
Other EEF recommendations
- The Technology Strategy Board (TSB) and its budget should be moved into the science ring-fence to create a “science and innovation” pot of approximately £5bn at current levels of funding.
- The High Value Manufacturing (HVM) Catapult's annual operational funding should be increased from £30m to £60m.
- Apprenticeship funding within the Adult Skills Budget, as well as the Department for Education (DfE) budget for Apprenticeships for 16 to 18 year olds, should be protected.
- Training for adult learners (19+) to achieve basic English and maths must continue to be funded by the government, and this cost should not fall onto the employer. The government should not extend the loans model to either level 2 apprenticeships or to those entering apprenticeships as 16 to 18 year olds, which currently receive 100% funding.
- The government must back UKTI with the long-term funding required to send a clear signal to business that it will deliver a high quality export support service.
- The government should scrap the Carbon Price Support scheme at this Spending Review in order to align efforts and costs in the UK with our European competitors.
- At the very least, government should rethink its current linear cost accelerator aimed at achieving a price of £30 per tonne of carbon dioxide by 2030.
- The Spending Review must make a commitment to extending all the measures in the current Energy Intensive Industry Package to 2020/21.
- The commitment to devolve growth-related spending from April 2015 should be contingent on a positive assessment of LEPs' readiness by the National Audit Office in the financial year 2014/15.