Spending Review 2015 speculation roundup

Just five sleeps (or sleepless nights) until the spending review, and we’re starting to get a firmer picture of what Mr Osborne has planned for the next five years.

This blog gives a whistlestop tour of the key figures that have been predicted to come out during the chancellor’s speech next Wednesday. I’ll be publishing a more analytical piece at the start of next week looking at what these predictions would mean for the voluntary sector.

What’s been announced so far

As of this morning, eleven out of the twenty spending departments have agreed their spending settlements with the Treasury – the BBC has a running summary. DCLG, HMT, Transport and Defra have all agreed to 30% budget cuts over four years. The remaining departments that have settled include DWP, HMRC, the Cabinet Office, DECC and the devolved administrations, having agreed to average 21% reductions.

Where are the remaining cuts expected to fall?

The IFS has an excellent briefing note (PDF, 437KB) that estimates a 27% average cut to unprotected departments (outside of the NHS, MoD, international aid and schools), which isn’t far from the 24% average of departments announced so far. The IFS’s best guess for the spending allocation for key departments looks like this:

IFS spending allocation

 

Source: IFS briefing note

The NHS is one of the few areas that will have a substantial spending increase owing to the prime minister’s pledge to provide it with an extra £8bn – but is in the middle of a £22bn efficiency drive, and the rest of the health budget is not protected. The remaining highest-spending departments, including DWP, MoJ, DfE and the Home Office, are set to see the largest absolute budget decreases, with likely effects on commissioning and outsourcing (more on that next week).

The local picture

The LGA published a report (PDF, 427KB) earlier in the year looking at the funding pressures and spending reductions for local authorities, identifying a £9.5bn shortfall. More recently, they raised this estimate to £16.5bn, including the anticipated effects of the spending review further reducing the central government grant to local authorities by 30%.

The graph below shows the estimated local government funding envelope for core services, with statutory services (that local authorities are obliged to provide) highlighted in the top three bands. These are shown to grow (due to demographic changes) even as the overall funding envelope shrinks, squeezing the remaining purple band of funding available for all other local government services.

If these estimates prove accurate, then by 2019/20, local government funding available for non-statutory services will be around £10bn, around 40% of what it is now.

Local Government Funding Envelope

Source: LGA Future Funding Outlook, adapted to include more recent estimates.

Where next for tax credits?

The chancellor has been under cross-party political pressure to alter his plans to cut tax credits, making it very possible that he will announce changes to these policies during his speech. Resolution have published an analysis of the tax credit changes and options for reducing the impact on low-income households, and SMF have suggested that policies leading to a small increase in tax credit claimant earnings would save Mr Osborne £4.1bn. The Guardian and Financial Times (paywall) are reporting that he may target housing benefit to find the money for some of these changes.

What does this all mean for the voluntary sector?

Keep an eye out at the start of next week, when I’ll be publishing an analysis of what these changes could mean for charities, and what you should be watching out for as the chancellor announces his decisions. The joint autumn statement and spending review is expected to be presented at 12.30pm on Wednesday 25 November.

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Michael Birtwistle Michael is our senior policy officer, covering issues around charity tax and finance (including social investment) and the impact of the economy on the sector.

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