The Guardian - 06.09.2019

Section:GDN 1N PaGe:43 Edition Date:190906 Edition:01 Zone: Sent at 5/9/2019 19:32 cYanmaGentaYellowbl

Friday 6 September 2019 The Guardian •

Financial^43

Spending review

Phillip Inman

S

ajid Javid said on

Wednesday the

government could

aff ord to “turn the page

on austerity” as he set

out Whitehall spending

priorities. Publishing departmental

budgets for next year, the chancellor

claimed a rise in spending of 4.1%

this year and next would “bring a

decade of renewal”. Critics warned

that his claims were overblown and

nine years of spending cuts would

continue to take their toll. Here we

assess Javid’s claim that a line is

being drawn under austerity.

Why did the government claim

that austerity was over?

Day-to-day spending on public

services will grow by about £13.8bn

between 2019 -20 and 2020 -21. This

is above the more circumspect

spending plans set out by Javid’s

predecessor Philip Hammond in

March. Most of the increase – about

£11.7bn – will take eff ect in the next

fi nancial year. Javid rightly said

it represented the largest rise in

at least 15 years and was a turning

point after years of spending cuts.

He also topped up next year’s capital

spending by £1.7bn.

Why did the coalition government

bring in austerity?

The annual public spending defi cit –

the diff erence between government

income and expenditure – reached

almost 10% after the fi nancial crisis.

Most of the traditional sources of

advice – the International Monetary

Fund, the OECD, the governor of the

Bank of England and the Institute

for Fiscal Studies thinktank – said

government spending cuts were

needed to balance the books.

Under George Osborne, the

Treasury forced through measures

from 2010 that cut local authority

spending by about 60% and imposed

40% cuts on many government

departments. Public investment

spending also came to a virtual

standstill, bringing to an end 15

years of improvements to hospital

and school buildings. Only three

budgets were saved from Osborne’s

knife: schools , the NHS and the

international aid budget.

Osborne’s plan, which included

tax cuts for companies, was

supposed to spur growth and reduce

the government defi cit – the gap

between income and expenditure –

to zero by 2015. Cuts to the schools

budget were introduced two

years ago, leading to widespread

redundancies and rising defi cits,

especially in secondary schools.

How much was cut from public

spending?

Once infl ation is taken into account,

the Resolution Foundation

‘A decade of renewal’ Is Javid really

bringing era of austerity to a close?

▲ Schools

budget cuts were

introduced two

years ago, with

widespread

redundancies

PHOTOGRAPH: ADRIAN

SHERRATT/ALAMY

subsequently been recouped) the

dramatic cuts in public spending

meant ministers had reduced means

to support households – the bedrock

of spending in the economy – or the

wider business community.

At the time Labour proposed

maintaining public investment,

arguing that with borrowing rates at

historic lows after the crash , there

was an opportunity to improve

Britain’s infrastructure on the

cheap. With a Conservative-led

government unprepared to step in,

businesses remained nervous and

private investment failed to take off.

Employment rose to a record high,

but without an increase in public

or private investment, productivity

stagnated and wages increased

more slowly than infl ation, leaving

household incomes depressed.

Does Wednesday’s statement

restore those cuts?

The IFS said Javid’s plans were

enough to reverse about two-thirds

of the real-terms cuts to average

day-to-day spending on public

services since 2010. However, this

achievement is even less signifi cant

when Britain’s rising population is

considered. On a per capita basis,

only a third of the cuts are reversed.

The average rise of 4.1% across

Whitehall also masks variation

within the total. “If we exclude

health, the additional spending will

only be enough to reverse around

a quarter of the cuts since 2010 (or

around 15% of the per capita cuts to

non- health areas),” the IFS said.

What needs to done to defi nitively

end austerity?

If Boris Johnson wins the expected

general election, the autumn budget

is likely to feature the £20bn of

tax cuts that he has championed.

These are commitments that

are likely to limit the scope for

further increases in departmental

or welfare spending. According

to the Resolution Foundation,

departments such as work and

pensions will have suff ered cuts

of 69% compared with 2010 fi gures

even if the 2020-21 increases are

taken into account. On the same

calculations, the justice department

has suff ered a cut of 31% and local

government 77%. Reversing these

cuts will take more than Javid was

prepared to off er in his spending

review. Avoiding a no-deal Brexit

is another way to limit the damage

to the economy and government

tax receipts. Research by the

thinktank The UK in a Changing

Europe showed that trading with

the EU with standard import tariff s

in place would reduce Britain’s per

capita income by between 3.5% and

8.7% over 10 years.

‘If we exclude health,

the additional

spending will only

be enough to reverse

around a quarter of

the cuts since 2010’

Institute for

Fiscal Studies

Source: Resolution Foundation

14%

9

8

-3

-8

-11

-12

-12

-21

-22

-25

-31

-31

-37

-47

-52

-54

-69

-77%

-80 -60 -40 -20 0% 20

Northern Ireland

Defence

Education

Digital, Culture, Media and Sport

Wales

Chancellor’s departments

Justice

Law officers’ departments

Environment, Food & Rural Affairs

Scotland

Business, Energy and Ind. Strategy

MHCLG - Housing and Communities

Work and Pensions

Transport

MHCLG - Local Government

Health and Social Care

International Development

Foreign and Commonwealth Office

Home Office

In spite of the increase in public

spending for 2020-21, the legacy

of cuts still looms over many

departments

Cumulative real change in day-to-day

spending (per capita) from 2009-10

to 2020-21

▲ The chancellor, Sajid Javid, meets police recruits PHOTOGRAPH: JOE GIDDENS/REUTERS

thinktank calculates that day-to-

day departmental spending fell by

£32bn between 2010-11 and 2017-18,

from £334bn to £302bn. This is a 10%

fall. If Britain’s rise in population is

taken into account – which shows

the eff ect of diminished government

funds being spread across more

people – day-to-day departmental

spending fell by 15% between

2009-10 and 2017-18, from £5,340

per person in 2009-10 to £4,560.

Figures released last year by the

House of Commons library revealed

that £37bn was on course to be sliced

off the welfare budget by 2021, a 25%

reduction in real terms since 2010.

What was the economic impact?

The fi nancial crisis hurt British

businesses and the fi nancial sector.

While the government used about

£100bn of taxpayer funds to bail

out banks (much of which has

£13.8bn

Growth in day-to-day spending on

services between 2019 -20 and 2020-21

- the largest rise in at least 15 years

25%

The reduction in the welfare budget

between 2010 and 2021, according

to the House of Commons library

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