Reflections on the spending review

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reflections-on-the-spending-review

First up, let’s give credit where credit is due. George Osborne stuck to his guns yesterday, and achieved with the Comprehensive Spending Review what he set out to achieve, outlining £81bn in savings that the government would make between now and 2015. If these savings are realized, the government will hit its spending targets and take a big step towards balancing the cyclically adjusted current budget by the end of the Parliament. It took political courage to do this in the face of widespread special interest opposition and a generally unfriendly media.

But we do need to keep things in perspective. As the chancellor admitted in his speech, we are only going back to 2008 levels of real terms spending – so this is hardly the fundamental re-imagining of the state that some of us were hoping for. Indeed, if you assume two percent a year inflation, total spending will only fall by a couple of percent between now and 2015 – despite admittedly severe cuts in some specific departments, and particularly in capital budgets.

The reason for this is largely down to three things: health, welfare, and debt interest payments. Debt interest payments are set to skyrocket over the next five years, rising by 35 to 40 percent in real terms, and will end up costing us more than the entire education department. Welfare spending is going to remain more or less the same over the next five years, while health spending will rise in real terms by 4 percent or so. Together these three things represent almost half of total public spending, so the lack of savings counterbalances cuts elsewhere.

Of course, there’s not much the government can do about debt interest payments, but on welfare and health they have missed an opportunity to really get to grips with the fact that the post-war welfare settlement will not be affordable for very much longer. Universal benefits are, like it or not, living on borrowed time.

We also need to remember that the Comprehensive Spending Review is only the beginning. It’s not so much a case of “mission accomplished” as “what now?” As I wrote on ConservativeHome earlier this week, we still need a positive agenda for economic growth. We also need a genuine commitment to radically reforming the public sector, since only that will make spending reductions sustainable in the long term.

To put it bluntly, the government has made a decent start. But there’s no room for complacency: much remains to be done.