Large and unprotected

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Business, by and large, believes in balancing the books and has been telling the British government to follow its example. Unless firms want to pay more tax – not something we hear a lot of around the EEF table – that means the nation’s 4.8 per cent of GDP deficit is going to need to be closed by spending cuts. What does that mean for the bits of government spending business cares about? Here is an attempt to run the numbers. 

Set aside, for the moment, spending budgets outside the Department for Business (BIS). It is, in the Whitehall jargon, both large and unprotected.  The latter means that it is not one of the politically high-profile budgets like schools, foreign aid, and the National Health Service, which have been guaranteed an exemption from spending reductions. If total spending falls in line with the government’s previously-published plans, making space for those privileged public services implies on the EEF’s arithmetic an average cash cut of 18 per cent for everyone else by 2018-19. (the equally highly-respected Institute for Fiscal Studies calculates this figure is a marginally less drastic 15 per cent).

Working out just what this means for BIS is not straightforward, as – putting prudence ahead of transparency – government departments didn’t published detailed spending plans for the current year before the election. The total planned current spend by BIS in 2015-16 is some £12 billion, if we leave out non-cash depreciation and demand-led student grants and loans. If that has been divided in line with the pattern of 2014-15, it looks something like this (heavily rounded).



£ billion

Science  4 ½ 
Skills 3
Universities 2
Keeping post offices open ¼
Administrative costs ½
“Other”, including innovation, protection for energy intensive industries, industrial strategy 1 ½

There’s also £4 billion of capital spend.


One surprising but important fact that emerges from these figures is that the expenditure of the business department is mostly - about four-fifths if you include student loans and grants - keeping universities and FE colleges in business. Spending on industry is in cash terms modest.

An 18 per cent cut on that total is worth over £2 billion. One wrinkle here is that the government is committed to protect the science budget. With luck, that shrinks the cut to just over £1 billion on the remaining non-science £7 billion (but it is not unimaginable that the Treasury will still ask for the full cut, doubling the effective percentage cut on the rest to over a third). That protection is good news for scientists, but makes the scope for hard choices even narrower. Is remedial basic literacy for adults more important for the nation than village post offices? Should educating tomorrow’s employees get higher priority than technology partnerships with today’s employers? Tot up all the things business has said are vital, and there simply isn’t room for all of them within the budget BIS is likely to be left with.

Prioritisation is therefore important. But it should take place within a bigger picture and the first prioritisation to make is at a higher level, between government departments rather than within them. Across-the-board percentage cuts at the same flat rate for every department might feel fair because they deliver equal pain to Ministers and their officials: their impact on the country can be much less than sensible or fair, though.

Pretty much all the business department’s spending is on things that will improve the future productivity and competitiveness of the nation, either by building the skills of the workforce or by developing new technologies and processes. Elsewhere in Whitehall, budgets provide for public services – services which only a prosperous nation can afford. Like a business, government needs to recognise that investment is a precondition of future earning power: failing to put money into developing a more productive economy will limit our future ability to buy ourselves social care, public libraries and other amenities.

Past governments used a rather muddling slogan about “investment in public services”. In fact, the choice on the table is really between investment now, which creates the potential to afford public services in the future, and privileging public services in the short term at the expense of long-term prosperity. Both economically and chronologically, investment in future productivity growth has to come first.

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