This week sees the Chancellor unveil his much anticipated spending review. The task at hand is clear: the Government needs to find a further £11.5 billion in spending cuts in 2015-16. The uncertainty is how the pain will be shared across departments. As is to be expected, the cuts are much harder to find this time around than they were in 2010 because the fat has already been trimmed. It is now a matter of deciding between equally important priorities.
Once again, the Government has announced its intention to protect some areas of spending from the worst of the cuts: international development, the NHS and education. But the protections for education can be misleading. Within the Department for Education, only the schools budget is protected, putting greater pressure on other parts of the budget, including early years. With the introduction of the new two-year-old childcare offer, funding for other early years provision will be harder and harder to find. If children’s centres have weathered the storm for the last three years, remaining open will become increasingly difficult.
But the trouble ahead pales in comparison to what is in store after the next election. To stick to the current deficit reduction timetable, the Government of the day would have to find a further £26 billion in cuts between 2015-16 and 2017-18. Even a less aggressive deficit reduction plan would still require relatively severe cuts to public spending. If these cuts are taken from departmental spending alone, that would leave some departments unable to function. The Foreign Office and Home Office for example would be half the size they were in 2010. Reducing the size of the state by this magnitude seems implausible.
If savings are not going to come from departmental budgets, then they will have to be found from elsewhere. But there are only two choices: tax rises or further cuts to welfare. Of course, tax rises are politically unpalatable, although increasingly likely post-election. That leaves welfare cuts which have already fallen hard on working age families as a result of cuts to working tax credit, child tax credit, childcare tax credit and child benefit for those on higher incomes. Working age families have seen a 15 per cent fall in state support since 2010 compared to a 6 per cent rise in support for pensioner households. To stick to the current deficit reduction plan and maintain the current rate of cuts to departmental spending would mean cutting an additional £10 billion from the welfare budget – more than has been cut from welfare to date.
For working families with children the spending review looks likely to prolong the challenges of the last five years. In all likelihood, access to early years services will be further restricted at the same time as families face further cuts in support from government, while the prospects for a pay rise for the typical worker remain some years off. Unsurprisingly, debate is now picking up about the merits of continuing to protect pensioners while working age households continue to bear the brunt of cuts. George Osborne has raised the prospect of means-testing winter fuel allowance but that has to be just the start if working families are to feel some reprieve.