IFS Green Budget 2014: The Eye of the Storm?

On Wednesday, the Institute for Fiscal Studies (IFS) unveiled its Green Budget for 2014 – a document that analyses challenges that the Chancellor will face as he prepares to deliver the real budget in next month.

Here’s what you need to know about this year’s Green Budget.

In the words of Bon Jovi, “Whoa we’re half way there…”

Due to a range of factors, the government has not been able to eliminate the structural deficit in this parliament as originally planned. Only 46% of cuts will have taken place by the end of this financial year.

Even by the end of this parliament, only 65% of planned ‘fiscal tightening’ would have been implemented. This means that there will still be a lot of work to do in the next parliament if the Chancellor is going to balance the budget.

Watch departmental spending plans

The anatomy of the tightening that has taken place so far is also interesting. Around 80% of the planned tax increases will have been implemented by the end of this parliament as well as 87% of planned cuts to social security spending.

The Chancellor made nearly all the savings he plans from the public sector investment budget. So what is left to cut? Answer: Departmental budgets. Departmental spending includes local government, health, education, transport, culture and everything else not covered by social security or debt interest.

To meet his target, the IFS estimate that departmental spending will have to be reduced by £37.6bn or 10.5% between 2015-16 and 2018-19.

If the government keeps protection in place for health, schools and international development, unprotected departments (local government, defence, transport, culture, environment etc.) will have to reduce their spending by around 20% in the next parliament. This is on top of the 21% of cuts that they have already made to their budgets in this parliament.

This is an incredibly tall order ­– the IFS states that there is a risk that these savings might be undeliverable. As the election approaches, parties are likely to say more about how they will achieve these cuts and we will need to scrutinise their proposals.

Social security under the spotlight again

One way that the government can reduce the need for departmental savings is to make further changes to the social security budget. The Chancellor has already said that he hopes to make £12bn of additional savings here.

Given that all parties are likely to go into the election promising to protect the state pension, this will focus savings on areas such as disability benefits, housing benefits and tax credits.

If this proposal is implemented…

The cut to departmental spending can be reduced from 10.5% to 6.8%.

If protections for health, education are maintained…

The need for other departmental spending reductions falls from 19.7% to 12.7%.

How will this affect the sector?

Tackling the deficit will continue to put pressure on all funding for the sector from government, whether that is through grants or contracts. If spending protections are put in place for health, schools and international development then this is likely to put even more pressure on smaller organisations that depend on funding from local authorities work in areas such as culture, the environment or justice.

The need for savings is likely to lead to more cuts to social security and could affect particular groups – disabled people, younger people, older people and those that struggle with housing costs. Charities and voluntary organisations that work in these areas are likely to see knock on effects.

You can read the IFS Green Budget and you can even watch the presentations made by clicking the links on the right hand side of this (under event speakers).

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Andrew was NCVO’s senior policy officer. He covered issues around funding, social investment, tax and the impact of the economy on the voluntary sector. Andrew has left NCVO, but his posts are kept here for reference purposes.

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