The cuts to come: What will Budget 2015 mean for departmental spending?
Today’s Budget casts further light on the details of this Government’s plans to bring the public sector accounts into surplus by 2019/20.
This compares to a total real terms fall of around 35 per cent for the same departments across the five years of the previous parliament (2011/12 to 2015/16), around 7 per cent a year on average.
Government spending can be described as either ‘capital spending’ used for investment, or else day to day ‘current spending’ on provisions and services. We know from the Office of Budgetary Responsibility (OBR) that the Chancellor intends to increase net capital spending across this parliament, so the bulk of cuts need to come from current spending.
Current spending again falls into one of two categories. The first category is ‘annually managed expenditure’ (AME). AME mostly covers outgoings that are contingent on social and economic changes, such as rises in out of work welfare payments caused by recessions. The second category of current spending is ‘resource departmental expenditure limits’ (RDEL). This represents money allocated to departments by the Treasury to run government services, such as schools and the NHS. By its very nature, RDEL is comparatively easier to plan and budget for. It is this area of government spending that is usually referred to when we talk about cuts to departmental current expenditure.
The burden of cuts set to fall on the first of these categories, AME, has been well documented in recent weeks. Today’s announcement confirmed the Government’s plans to find £12 billion in welfare savings, largely through reforms to in work tax credits and a freeze in working age welfare payments.
Of course, the Government has not yet told us (or do not themselves know) the details of how certain spending settlements will actually fall – including how the protected budgets in health, overseas aid and defence will be split between capital and resource. In the absence of this information we have made reasonable assumptions based on the evidence currently available, informed by relevant funding trends from the previous parliament.