CJO - Social Policy Digest

Social Policy Digest

Subject:	Public services and economic policy
Topic:	Public spending
Year:	2014 \| 2013 \| 2012 \| 2011 \| 2010 \| 2009 \| 2008 \| 2007 \| 2006 \| 2005 \| 2004 \| 2003 \| 2002

Autumn Statement 2012

The coalition government published the 2012 Autumn Statement on the economy and public finances. Independent forecasts of economic growth were revised down significantly for every year between 2012 and 2016, and the government conceded that it would fail to reach its targets for reducing public borrowing: as a result there would have to be a continuation of 'austerity measures' until at least 2017-18, three years longer than originally planned. The statement contained a series of measures that were neutral overall in budget terms. The measures included:

• An increase of just 1 per cent in cash terms in most working-age benefits and tax credits in each of the three years 2013-14 to 2015-16, saving £4.5 billion annually by 2017-18. Disability benefits and pensions would be unaffected. Child benefit would be frozen in 2013-14 (as previously planned).

• Further cuts to departmental resource budgets of 1 per cent in 2013-14 and 2 per cent in 2014-15 (except for health and schools, and excluding local government in 2013-14).

• A further increase in the annual personal income tax allowance for 2013-14, from £9,205 to £9,440, at an annual cost of around £1 billion. A rise of 1 per cent in cash terms in the higher rate threshold for income tax in 2014-15 and 2015-16.

• Cuts in the lifetime and annual tax allowances for pension contributions, raising £1.1 billion by 2017-18 from the wealthiest 1-2 per cent of savers.

• A cut of 1 percentage point in corporation tax from 2014-15, costing £8-900 million each year by 2015-16.

• Cancellation of the increase in fuel duty planned for January 2013.

An official distributional analysis of the effects of changes to tax, tax credits, and benefits up to 2013-14 showed those in the lowest half of the income distribution would suffer a loss of net income, with those in the lowest decile losing most. Those in the seventh and eighth deciles would gain slightly: but those in the topmost decile would lose most of all (around 2 per cent).

Source: Autumn Statement 2012, Cm 8480, HM Treasury, TSO

Date: 2012-Dec

Distributional impact of public spending cuts

A trade union report examined the potential impact of public spending cuts (excluding cuts in benefits and tax credits) on different family and household types. Families with children were at risk of the greatest cuts in services. A single-earner household with children was set to lose over £6,100 per year by 2016-17 (equivalent to around 11 per cent of average income for a household of this type), and workless couple households with children were set to lose over £8,700 over the same period (around 28 per cent of average income for a household of this type). Although those out of work were set to lose more than those in work, the cash impacts for families with children were far worse than for households without them, whether they were in or out of employment.

Source: Families First: Who loses most from cuts in public services, Trades Union Congress

Links: Report | TUC press release

Date: 2012-Nov

Warning of more public spending cuts

A think-tank report said that the outlook for public finances had worsened since the Office for Budget Responsibility s March 2012 forecasts. Economic growth had been weaker than forecast, and the growth in tax revenues had been lower (by more than would normally be explained purely by weak economic growth). Hitting fiscal targets would require the government to (for example) extend to 2017-18 the same average squeeze on public service spending that was planned for the Spending Review 2010 period, make £8 billion of benefit spending cuts, and implement a further £11 billion of tax increases or public spending cuts.

Source: Carl Emmerson and Gemma Tetlow, Autumn Statement 2012: More Fiscal Pain to Come?, Briefing Note 136, Institute for Fiscal Studies

Date: 2012-Nov

Coalition plans for public finances undermined by poor economic growth

A report said that the coalition government's plans for the public finances for the period to 2014-15 had been undermined by poorer than expected economic growth. As a result even bigger public spending cuts would be needed. These cuts would have huge implications for the ways in which policy-makers approached the delivery of public services.

Source: Ian Mulheirn, Nida Broughton, Ben Lucas, and Henry Kippin, Fiscal Fallout: The challenge ahead for public spending and public services, Social Market Foundation/Royal Society of Arts

Links: Report | RSA blog post | Guardian report | Public Finance report

Date: 2012-Nov

Impact of cuts in benefits and social services

A report examined people's experiences of the coalition government's austerity measures, and the implications of the cuts for its 'Big Society' project. The combined impact of benefits reform and public sector cuts was adding significant pressure to a system that was already buckling under the strain of growing demand and underfunding. As a result, in the short term, charities and communities were under growing pressure to step in where the state had withdrawn. In the long term, social crises were likely to build up leading to unsustainable human, social, and economic costs.

Source: Joe Penny and Julia Slay, Everyday Insecurity: Life at the end of the welfare state, New Economics Foundation

Links: Report | Summary | Guardian report

Date: 2012-Nov

Call to abolish national pay bargaining in public sector

A think-tank said that 'rebalancing' the pay and pensions of public sector workers so that they were in line with equivalent workers in the private sector would save £6.3 billion per year in public spending. The public sector 'premium' – the additional pay a typical public sector worker received compared with a private sector worker – was around 7 per cent, and nearly 14 per cent after including pension rights. In 'some' parts of the country, 'some' public sector workers enjoyed premiums over their private sector counterparts of as much as 25 per cent. This situation had arisen because of the system of national pay bargaining, which meant that workers were paid the same amount regardless of where they lived. The report recommended abolishing this system and enabling local public sector employers to choose systems of pay that reflected local living conditions and varied pay awards by the performance of employees.

Source: Ed Holmes and Matthew Oakley, Local Pay, Local Growth: Reforming pay setting in the public sector, Policy Exchange | Matthew Oakley, Mind the Gap: The size and costs of pay differentials between the public and private sectors in the UK, Policy Exchange

Date: 2012-Sep

Long-term outlook for public finances

A think-tank report set out the major drivers of rising demand for public spending, and highlighted the political choices that would determine the impact of these trends on public finances over the following 50 years. It identified four key approaches:

• Raise the long-term rate of growth and the employment rate to help achieve fiscal consolidation and, over the long term, reduce the size of the 'fiscal gap'.

• Increase tax revenues to make up the shortfall in future income, and consider whether total revenues should be higher in the long term to pay for some of the extra demand for services and benefits.

• Identify priorities for public spending and the trade-offs inherent in different choices.

• 'Reform' public spending to limit rising demand or reduce the cost of public provision, to address cost pressures in public services.

Source: Kayte Lawton and Amna Silim, Pressures and Priorities: The long-term outlook for Britain's public finances, Institute for Public Policy Research

Links: Report | Summary | Guardian report

Date: 2012-Sep

NHS underspend clawed back by Treasury

New official figures showed that overall spending by government departments had been £6.7 billion lower in Session 2011–12 than planned. Cash departmental spending fell by £11.0 billion, which equated to a 5.2 per cent fall in real terms. The largest underspend was by the National Health Service – £1.7 billion, or 1.6 per cent of its Session 2011–12 budget – most of which would be taken back by the Treasury for use on non-health spending and tax cuts.

Source: Public Spending Statistics July 2012, HM Treasury

Date: 2012-Jul

Warning of further public spending cuts – advisory body report

A report (by an official advisory body) said that further tax increases or spending cuts were likely to be needed on top of the existing 'fiscal consolidation' in order to help meet the costs of an ageing population. But it also said that gross public service pension payments were set to fall from 2.2 per cent of national income in 2016-17 to 1.3 per cent in 2061-62 – saving around £430 billion in aggregate.

Source: Fiscal Sustainability Report, Office for Budget Responsibility

Date: 2012-Jul

Long-term trends in public finances – think-tank report

A think-tank report examined the long-term trends that would shape the health of the public finances over the following two decades and beyond, including the impact of demographic, economic, and social trends on government revenue and expenditure. It called on politicians to start a public debate about the scale of the challenge posed by increasing demand on public services accompanied by restrictions on future tax revenues.

Source: Rick Muir, The Long View: Public services and public spending in 2030, Institute for Public Policy Research

Links: Report | CBI press release | Public Finance report

Date: 2012-Jun

Call for urgent public sector reforms

A report identified five 'rarely acknowledged' areas for urgent public sector reform. It suggested that the government could improve its financial and business management to:

• Save up to £8.5 billion per year by bringing public sector fraud prevention and detection rates in line with the private sector.

• Save up to £10.2 billion per year by improving cash management in government. This included reducing levels of aged and written-off debt and improving working capital management.

• Reform areas of spending under pressure from demographic change, such as welfare and health, and examine further asset sales, including infrastructure, to achieve budget surpluses in the next parliament.

• Target a public sector productivity growth rate of at least 0.3 per cent in 2012-13 by improving flexibility and accelerating reform of the workforce and capital spending. The government needed to press ahead with reducing the public sector headcount and transferring workers to mutuals: but also to ensure that this was sustainable, with improvements to skills and capability.

Increase the proportion of locally raised council spending year on year, and improve financial management skills at the local level to support the localization of services.

Source: The State of the State 2012, Reform/Deloitte LLP

Links: Report | Deloitte press release | Public Finance report

Date: 2012-May

Use of management information by central government

A think-tank report highlighted the benefits that would arise if central government used better management information when taking decisions about public spending.

Source: Julian McCrae, Justine Stephen, Theresa Guermellou, and Reema Mehta, Improving Decision Making in Whitehall: Effective use of management information, Institute for Government

Links: Report | IFG press release

Date: 2012-May

Tighter rules for departmental spending

The coalition government published new fiscal rules designed to allow departmental spending to be more closely monitored by the Treasury. Departments would in future need to monitor and share spending information with the Treasury on a monthly basis. They would also be required to have a plan for around 5 per cent of their budgets to be 're-prioritized' if new spending pressures emerged.

Source: Improving Spending Control, HM Treasury

Date: 2012-Apr

Cost reduction in central government – report by MPs

A report by a committee of MPs said that government departments faced a 'major challenge' in making the spending cuts required under the coalition government's austerity programme. Departments needed to do better at planning their finances logically, understand the relationship between costs and outcomes better, and not go for the easy option that might most damage frontline services. What was needed was an overarching strategic framework that, among other things, identified the impact of a cut in one department on expenditure in another, and the long-term impact on value for money and expenditure of short-term decisions to live within budgets.

Source: Cost Reduction in Central Government: Summary of Progress, Eightieth Report (Session 2010-12), HC 1845, House of Commons Public Accounts Select Committee, TSO

Links: Report | CBI press release | Public Finance report

Date: 2012-Apr

MPs warn over financial accountability of decentralized services

A report by a committee of MPs said that greater clarity and consistency were needed to ensure that watchdogs could properly monitor public services decentralized by the government to bodies such as foundation trusts, free schools, and elected police authorities.

Source: Accountability for Public Money – Progress Report, Seventy-ninth Report (Session 2010-12), HC 1503, House of Commons Public Accounts Select Committee, TSO

Links: Report | BBC report | Public Finance report

Date: 2012-Apr

Public service cuts in Wales – AM report

A report by a committee of the National Assembly for Wales said that the scale of recent public sector cuts was 'unprecedented'. Although improvements in efficiency had been made, there was a need to build rapidly on the collaboration already achieved, to make further savings, and to mitigate the impact that a reduction in spending would have on service users.

Source: A Picture of Public Services, Public Accounts Committee, National Assembly for Wales

Links: Report

Date: 2012-Apr

Quango savings doubted by MPs

A report by a committee of MPs raised 'substantial concerns' over whether the coalition government would be able to save the £2.6 billion that it had claimed could be found by reducing the number of quangos and other public bodies. The government's savings target was based on incomplete and imprecise estimates of the costs incurred in axing the 262 bodies.

Source: Reorganising Central Government Bodies, Seventy-seventh Report (Session 2010-12), HC 1802, House of Commons Public Accounts Select Committee, TSO

Links: Report | BBC report | Public Finance report | Telegraph report

Date: 2012-Apr

Think-tank calls for cuts in welfare spending

A think-tank report called for cuts in public spending on health and education, and on welfare benefits for middle-income groups.

Source: Andrew Haldenby, Patrick Nolan, Lauren Thorpe, and Kimberley Trewhitt, Reformers Not Spenders, Reform

Links: Report | Reform press release

Date: 2012-Mar

Distributional impact of public spending

A paper examined the impact of government activity on the distribution of household living standards and well-being. The impact of taxation seemed to be 'not far from proportional', while cash transfers were strongly redistributive. The largest item of public spending in kind – health – benefited lower-income groups most. The picture with education was less clear, since lower-income groups appeared to benefit less from those parts of the education system that had universal coverage and to make least use of those sections that did not.

Source: Cormac O Dea and Ian Preston, The Distributional Impact of Public Spending in the UK, Working Paper 12/06, Institute for Fiscal Studies

Links: Paper

Date: 2012-Mar

Budget 2012

The 2012 Budget statement set out proposals to:

• Increase the income tax personal allowance by £1,100 in April 2013, to £9,205 per year. The basic rate limit (the range of income subject to income tax at the basic rate of 20 per cent) would be cut by £2,215 to £32,245 per year from the same date.

• Freeze the age-related personal tax allowance for those aged 65 and over from April 2013 at 2012-13 levels until it was aligned with the allowance for those aged under 65. From April 2013, the age-related allowance would be restricted to those eligible at that point.

• Cut the 50 per cent top rate of income tax to 45 per cent from April 2013.

• Cut corporation tax by an extra 1 per cent from April 2012, to 24 per cent. Together with cuts already announced, corporation tax would fall to 22 per cent in April 2014.

• Withdraw child benefit from households in which someone had an annual income of over £50,000 per year (rather than households with a higher-rate taxpayer as previously announced). The withdrawal of child benefit would be implemented in steps for households in which someone had an income of between £50,000 and £60,000.

• Introduce a new stamp duty rate of 7 per cent on residential property worth over £2 million.

• Issue to all taxpayers, from 2014-15, a new 'Personal Tax Statement' detailing the income tax and national insurance contributions that they had paid, their average tax rates, and how this contributed to public spending on different areas.

• Cut total public spending on 'welfare' by an additional £10 billion by 2016.

Source: Budget 2012, HC 1853, HM Treasury, TSO

Date: 2012-Mar

Cost reduction in central government – audit report

An audit report said that government departments had cut spending in real terms by 2.3 per cent in 2010-11 compared with 2009-10. Spending moratoria and efficiency initiatives, including cuts to back-office and avoidable costs, contributed around half of the figure. But departments were less well-placed to make the long-term changes needed to achieve the further 19 per cent cuts over the four years to 2014-15, as required by the Spending Review.

Source: Cost Reduction in Central Government: Summary of progress, HC 1788 (Session 2010-2012), National Audit Office, TSO

Links: Report | NAO press release | IOG press release | BBC report | Public Finance report

Date: 2012-Feb

Whole of Government Accounts – report by MPs

A report by a committee of MPs said that it welcomed the publication of the first audited 'Whole of Government Accounts' as a major step forward in improving transparency and accountability. The accumulated value of future commitments under private finance initiative (PFI) schemes was £131.5 billion – four times the value of the assets secured through the deals.

Source: Whole of Government Accounts 2009-10, Sixty-seventh Report (Session 2010-12), HC 1696, House of Commons Public Accounts Select Committee, TSO

Links: Report | Public Finance report

Date: 2012-Feb

'Significant investment' needed in infrastructure systems

A report said that 'significant investment' would be needed in many cases to replace ageing infrastructure systems for energy, water, waste, information/communications technology, and transport.

Source: Jim Hall, Justin Henriques, Adrian Hickford, and Robert Nicholls (eds.), A Fast Track Analysis of Strategies for Infrastructure Provision in Great Britain, Environmental Change Institute (University of Oxford)

Links: Report | Oxford University press release

Date: 2012-Jan

No long-term savings from public sector pension 'reform'

A think-tank report examined the coalition government's policies on public sector pensions and pay. It concluded that the pension 'reforms' would make 'little or no difference' to long-term costs: the savings from higher pension ages were, on average, offset by greater generosity in other elements. The pay freeze, and the additional two years of below-inflation increases, would leave public pay at roughly the same level relative to private pay as it was in 2008.

Source: Carl Emmerson and Wenchao Jin, Public Sector Pensions and Pay, Institute for Fiscal Studies

Links: Report | IFS press release | TUC press release | Guardian report | Public Finance report

Date: 2012-Jan