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Austerity won’t be over until…our public services get the funding they need

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Published date
26 Oct 2018
The Chancellor has his work cut out to show that there’s “light at the end of the tunnel” for our cash-strapped public services

Austerity won’t be over until…the public sector is funded properly

At this year’s Conservative Party conference, Theresa May announced with much fanfare that austerity was “over”.

Monday's Budget will be the first chance to see if she meant what she said.

And when it comes to public sector funding, the Chancellor will have his work cut out to show that there’s “light at the end of the tunnel” as he promised.

Because while Theresa May has called time on austerity, her government’s current spending plans imply anything but.

Funding crisis

Spending on public services (as opposed to transfers [benefits] and infrastructure [roads and buildings]) is often referred to as Resource Departmental Expenditure Limits (RDEL).

Whatever way you look at it, RDEL spending has plummeted since 2010.

Our analysis shows that by 2022, public spending will have declined by £940 per person from its 2010 level.

And this month the IFS estimated that RDEL has fallen by £45 billion since 2010/11.

On top of this, our research suggests non-ringfenced spending is set to decline by 2% or 4% per capita by 2023.

That could mean a cut of £70 million to the prison service and £30 million from homelessness prevention.

Protected in name only

We also don’t think that the “protected areas”, which include Education, Defence, the NHS and Foreign Aid, have been properly funded.

After all, the NHS has seen an unprecedented squeeze on its funding over the last eight years.

The government promised it an extra £20bn in June, but this won’t even be enough to match its spending commitments for the next five years.

According to the Institute of Fiscal Studies (IFS) and Health Trust, the Department of Health needs to spend an extra 5% each year – but the extra £20bn NHS funding is only 3%.

Under current spending plans, schools also face a 4.6% drop in funding between 2015 and 2020.

So if the Chancellor is to honour Mrs May’s promise to end austerity, he’ll have to pull some big spending commitments out of his red box come Monday.

What's needed

If austerity is really “over” for our public services here are two things that need to happen:

1. A rise in REDL spending

Government spending plummeted after 2010 across all sectors .

But over the past two years ministers have slowly accepted that the economy needs some investment to grow.

Yet until very recently, the government limited the options for such spending.

Spending on infrastructure was allowed, but everyday spending on wages and services was thin on the ground.

At last year’s Budget, the Chancellor at least acknowledged that he’d lost the battle on public sector pay, but RDEL spending remained at a historically low level.

That’s why the overall level of day to day spending is definitely one to watch for on Monday.

2. No new cuts to fund the extra NHS money

When the extra £20 billion for the NHS was first announced, we were told that it would be paid for through a mix of tax rises and the so-called “Brexit dividend”.

But at the start of October, the Prime Minister ruled out rising fuel duty , and it’s doubtful that the government ever believed in the idea of a Brexit “divided”.

And it’s very unlikely to arrive in any case – especially with the threat of the UK crashing out of the deal increasing by the day.

But after making such a splash about it, it’s going to be hard for the government to climbdown now.

The extra 20 billion will have to be found somewhere.

Will it be funded from additional money or from existing budgets (often disguised as “efficiency savings” or some other civil service euphemism for cuts).

If the latter, then lots of other hard-pressed budgets are in for a drastic squeeze and any talk of “light at the end of the tunnel” will ring hollow indeed.