A brief explanation. The expenditure limits for each government department are set ahead of time. This means that ministers have an idea of how much they will have to spend each year and can budget accordingly. Sometimes departments will go over these limits – because, y’know, they had to install a jukebox or something – and sometimes they will go under. As it happens, most departments have stayed within their bounds. It was originally envisioned that total departmental spending would decline by 14.3 per cent over these last five years, after accounting for inflation. It now looks closer to 13.6 per cent.
These are serious cuts. A 13.6 per cent decline in total departmental spending, from £411 billion to 355 billion, is pretty hefty by itself. But the really sizeable cuts emerge when you look at the departments individually, as today’s graph does. The Foreign Office and the Ministry of Justice have had their budgets reduced by almost a third. For the DWP and the DCLG it’s around a half. In fact, if you discount those departments that have gained over this Parliament, the average cut to the remaining departmental budgets is 20.6 per cent.
So why does the deficit remain? (1) For starters, these departmental expenditure limits aren’t the sum total of the Government’s spending. It’s just the part that the Treasury feels it has direct control over. The part of the budget known as Annually Managed Expenditure is, despite its name, far less manageable. This is the money (roughly £350 billion in the last financial year) that goes towards things such as social security benefits and debt interest, which fluctuate with demographics and the wider economy. When you include this, the Government’s total spending is set to decline by just 1.4 per cent over this Parliament. I will say more the about the changing profile of the Coalition’s spending in Thursday’s To The Point post.
So why does the deficit remain? (2) For seconds, and as any fule kno, the deficit isn’t just a function of spending. It also depends on tax, which is another variable that fluctuates with the economy. In 2010, the Office for Budget Responsibility forecast that the Government’s income would be £700 billion in 2014-15. Now it puts the number at £646 billion. Again, this will be the subject of a future To The Point post.
There’s yet more fruit to pick. If the individual departments have budgeted as they were asked to, and in many cases strictly, what is there left for them to do in the next Parliament? A lot, judging by my conversations with people in the Cabinet Office. They’re confident that the really big money will be saved when some of the current Government’s policies, such as the digitisation of Whitehall, come to fruition, as well as when departments are no longer tied into Labour’s horribly expensive contracts.