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What’s a Chancellor to do when he wants to increase capital spending, but doesn’t have much money to do it with and doesn’t want to borrow? Easy – he tells ministers to tighten their departmental budgets even further, and hand over the savings. This is what he did in the Autumn Statement (see point 2.5 on page 57, here). And it’s what he’s going to do tomorrow. As revealed this afternoon, the Chancellor has asked all unprotected departments – which, in this case, means every department except health, schools, aid and HMRC – to cut their current spending by a further 1 per cent in each of the years 2013/14.

This, apparently, will raise around £2.5 billion, which is less than the £4 billion that the Autumn Statement prised out of departments for “additional investment in infrastructure and support for businesses”. But aside from the numbers, three points stand out:

  • How keen is Osborne for more capital spending?So keen that he’ll risk a fight… It says a lot about the Chancellor’s eagerness for further capital spending that he’s willing to risk aggravating ministers not once, but twice, and at a time when many of them are already simmering in bitter anticipation of the Spending Review. But why so eager? Truth is, there’s a growing belief along Downing Street that the Coalition shouldn’t have followed Alastair Darling’s capital spending cuts – as they did – and instead shifted the axe quicker and more forcefully onto departmental budgets. Nick Clegg raised this concern a couple of months ago, but he wasn’t just speaking for himself, as some people supposed at the time – and he’s not the only one who now wants to make amends.
  • But he doesn’t want the fight to be too vicious. It’s also telling that – as the Spectator’s Isabel Hardman reports in detail – those departments headed by members of the National Union of Ministers have generally been allowed a bit of slack. For instance, the Ministry of Defence will be able to carry forward its £1.6 billion underspend from this year into the next two years, which will more than cover that extra cuts that Mr Osborne is demanding. I wonder whether the Tory leadership is more wary about upsetting voters over spending on defence and policing, or of upsetting Philip Hammond and Theresa May…
  • The malleability of the Spending Review. This whole episode is another reminder that, for all the stony-faced effort that goes into them, Spending Reviews can sometimes be reshaped like putty. And it’s not just George Osborne who’s doing this: Michael Gove decided to hold a “zero-based” review into his department’s administrative costs last year, and is now cutting them by more than he was previously. Other departments are also finding new savings, more or less unprompted. This shouldn’t be too surprising: after all, it’s unlikely that a Spending Review would determine every penny spent, and every penny saved, five years in advance. But it’s still useful to remember as the next Review rattles on down the highway.

Oh, and there’s another Budget-related story in the news today that’s worth noting: the Right to Buy is to be extended, such that tenants in London could receive a £100,000 discount when it comes to buying their property. Expect to hear that A-word, once again, in connection with this policy: aspiration.

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