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Osborne's cuts will shape the economy – and the future role of the state Osborne's cuts will shape the economy – and the future role of the state
(3 months later)
Recent political history is full of stories of ministers falling out over public spending. David Blunkett recalled in his memoirs how he "threatened violence" against the chief secretary to the Treasury in 2001 in a battle over cash. "I got hold of Paul Boateng's lapels on the way out of Gordon Brown's office … my fuse blew," he wrote.Recent political history is full of stories of ministers falling out over public spending. David Blunkett recalled in his memoirs how he "threatened violence" against the chief secretary to the Treasury in 2001 in a battle over cash. "I got hold of Paul Boateng's lapels on the way out of Gordon Brown's office … my fuse blew," he wrote.
Almost every year Brown, when chancellor, refused to tell Tony Blair what was in his budget until it was too late for No 10 to object. One year Blair became so angry that he called in John Prescott, who told Brown: "He's the fucking prime minister – you've got to tell him what is in the budget."Almost every year Brown, when chancellor, refused to tell Tony Blair what was in his budget until it was too late for No 10 to object. One year Blair became so angry that he called in John Prescott, who told Brown: "He's the fucking prime minister – you've got to tell him what is in the budget."
When future memoirs record the runup to Wednesday's spending review, more tales of blown fuses will no doubt be added to the list. This weekend the business secretary, Vince Cable, is involved in what are being described as "epic rows" over how much will be cut, and what will be left for capital spending, in his Department for Business, Innovation and Skills. Osborne is looking for £11.5bn of cuts for 2015-16 from all of government as he tries to balance the books by 2018.When future memoirs record the runup to Wednesday's spending review, more tales of blown fuses will no doubt be added to the list. This weekend the business secretary, Vince Cable, is involved in what are being described as "epic rows" over how much will be cut, and what will be left for capital spending, in his Department for Business, Innovation and Skills. Osborne is looking for £11.5bn of cuts for 2015-16 from all of government as he tries to balance the books by 2018.
Cable is digging in, demanding enough capital spending to be able to justify saying that growth is his priority, while most others in cabinet were said to be close to reaching – or to have reached – agreement on Saturday night. Along the way, arguments have raged between Tories and Liberal Democrats over priorities. While Whitehall has kept the lid on leaks this time, following the "omnishambles" last year, behind closed doors things have been more problematic and some say even more tense than is normal, for two reasons.Cable is digging in, demanding enough capital spending to be able to justify saying that growth is his priority, while most others in cabinet were said to be close to reaching – or to have reached – agreement on Saturday night. Along the way, arguments have raged between Tories and Liberal Democrats over priorities. While Whitehall has kept the lid on leaks this time, following the "omnishambles" last year, behind closed doors things have been more problematic and some say even more tense than is normal, for two reasons.
First, the scale of what is being proposed is mind-boggling for all departments, except those with protected spending: health, education and international aid. Every time cuts are ordered, the more difficult they become to identify. New Labour's internal rows were often between ministers wanting bigger slices of an increasing spending cake. Now the reverse is happening.First, the scale of what is being proposed is mind-boggling for all departments, except those with protected spending: health, education and international aid. Every time cuts are ordered, the more difficult they become to identify. New Labour's internal rows were often between ministers wanting bigger slices of an increasing spending cake. Now the reverse is happening.
Based on figures provided by the Resolution Foundation, Cable's business department can expect by 2015-16 to have endured cuts in its annual expenditure limit of around a third compared with 2010-11. The same is true for Eric Pickles' Department for Communities and Local Government. The Department for Culture, Media and Sport's spending is likely to have almost halved and the Foreign and Commonwealth Office will have endured cuts of more than 50%.Based on figures provided by the Resolution Foundation, Cable's business department can expect by 2015-16 to have endured cuts in its annual expenditure limit of around a third compared with 2010-11. The same is true for Eric Pickles' Department for Communities and Local Government. The Department for Culture, Media and Sport's spending is likely to have almost halved and the Foreign and Commonwealth Office will have endured cuts of more than 50%.
And everyone in Whitehall knows worse is to come. "Ministers realise they have to make the arguments for their budgets now or else next time there will be almost nothing left to defend," said one Whitehall source.And everyone in Whitehall knows worse is to come. "Ministers realise they have to make the arguments for their budgets now or else next time there will be almost nothing left to defend," said one Whitehall source.
If things look tough up to 2016, projections from bodies such as the Institute for Fiscal Studies and the Resolution Foundation begin to look downright scary for unprotected departments after that, unless whatever government is in power puts up taxes or slashes welfare further.If things look tough up to 2016, projections from bodies such as the Institute for Fiscal Studies and the Resolution Foundation begin to look downright scary for unprotected departments after that, unless whatever government is in power puts up taxes or slashes welfare further.
The Resolution Foundation estimates that after the £11.5bn of cuts for 2015-16 to be announced by Osborne on Wednesday, a further £26bn will have to be shorn from spending by 2018 by whoever is in power if the books really are to balance.The Resolution Foundation estimates that after the £11.5bn of cuts for 2015-16 to be announced by Osborne on Wednesday, a further £26bn will have to be shorn from spending by 2018 by whoever is in power if the books really are to balance.
And that will mean cutting even deeper and faster than we are doing now. The current rate of cuts will deliver only £16bn of the £26bn needed.And that will mean cutting even deeper and faster than we are doing now. The current rate of cuts will deliver only £16bn of the £26bn needed.
The foundation has calculated what the impact that hitting £26bn might be on unprotected departments by 2018. It says that in theory Cable's department could have shrunk by then by a giant 45.1% compared with 2010-11. The Home Office would be smaller by 45.8%, defence by 38.2%, the Foreign Office 64.3%, and Communities and Local Government 54.9%.The foundation has calculated what the impact that hitting £26bn might be on unprotected departments by 2018. It says that in theory Cable's department could have shrunk by then by a giant 45.1% compared with 2010-11. The Home Office would be smaller by 45.8%, defence by 38.2%, the Foreign Office 64.3%, and Communities and Local Government 54.9%.
Gavin Kelly, chief executive of the Resolution Foundation, said that whichever party is in power after 2015 will inevitably face "nightmarishly difficult" decisions. But he does not think actual government will be cut by quite that much. "Something is going to have to give," he said. "This could be in the form of new tax rises or more slippage in the deficit-reduction timetable. Alternatively, further revisions in the estimate of the size of the underlying deficit might emerge, or yet more reductions in social security spending. But I'd be very surprised if we see departmental cuts on this scale."Gavin Kelly, chief executive of the Resolution Foundation, said that whichever party is in power after 2015 will inevitably face "nightmarishly difficult" decisions. But he does not think actual government will be cut by quite that much. "Something is going to have to give," he said. "This could be in the form of new tax rises or more slippage in the deficit-reduction timetable. Alternatively, further revisions in the estimate of the size of the underlying deficit might emerge, or yet more reductions in social security spending. But I'd be very surprised if we see departmental cuts on this scale."
The other reason that this spending review is so daunting is that we have a coalition – two parties governing, not one. It is not just a case of individual ministers competing for cash but also of two parties arguing over projects they want to be able to boast about with polling day less than two years away.The other reason that this spending review is so daunting is that we have a coalition – two parties governing, not one. It is not just a case of individual ministers competing for cash but also of two parties arguing over projects they want to be able to boast about with polling day less than two years away.
The Lib Dems have refused to let Osborne slash more from welfare and want to protect their pupil premium, their money for early-years education, investment in capital projects and science, and childcare. But Tory ministers have been eyeing Lib Dem projects as their prime targets.The Lib Dems have refused to let Osborne slash more from welfare and want to protect their pupil premium, their money for early-years education, investment in capital projects and science, and childcare. But Tory ministers have been eyeing Lib Dem projects as their prime targets.
There are philosophical differences. Many Conservatives are happy to see a hugely reduced state while Lib Dems such as Cable believe more efficient government has to work with the private sector to boost business and investment. Generational issues also divide the governing parties.There are philosophical differences. Many Conservatives are happy to see a hugely reduced state while Lib Dems such as Cable believe more efficient government has to work with the private sector to boost business and investment. Generational issues also divide the governing parties.
Many of the areas of spending protected by the Tories, including pensions and health, disproportionately benefit the elderly, while cuts, such as those to welfare and further and higher education, seem to be hitting the young. Lib Dems believe more cash should be raised by chipping away at the benefits of rich pensioners, whose incomes the Tories have promised to protect.Many of the areas of spending protected by the Tories, including pensions and health, disproportionately benefit the elderly, while cuts, such as those to welfare and further and higher education, seem to be hitting the young. Lib Dems believe more cash should be raised by chipping away at the benefits of rich pensioners, whose incomes the Tories have promised to protect.
This spending review is not just about how much to cut and where but about the future role of the state and whom it should be there to help.This spending review is not just about how much to cut and where but about the future role of the state and whom it should be there to help.
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