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Today HM Treasury published Public Spending Statistics which contain, for the first time, estimated spending outturns by Whitehall departments for 2011-12. The figures show that, in total, departmental spending was £6.7 billion lower than was planned this time a year ago. Had departments spent all their planned budgets in 2011–12, departmental spending would have fallen in cash terms by £4.4 billion between 2010-11 and 2011-12 - a real terms fall of 3.5%. As a result of the underspends, cash departmental spending actually fell by £11.0 billion, which equates to a 5.2% real terms fall.
The £6.7 billion underspend is comprised of a £5.3 billion underspend by Whitehall departments, and £1.4 billion of funding held in reserve by HM Treasury this time last year that subsequently did not need to be allocated to departments. The £5.3 billion underspend is equivalent to 1.4% of departments’ budgets. In other words, on average departments spent 98.6% of the money they were allocated in 2011–12; although – as we shall show – there was considerable variation in the relative size of underspends across departments.
One obvious reason why departments might underspend is that they might have been given permission by the Treasury to move funds into the next financial year under the new ‘Budget Exchange System’. Under this system departments who surrender any underspend (up to a 'reasonable limit') in advance of the end of the financial year can get an equivalent increase in their budget in the following year. However, of the £5.3 billion underspent by departments in 2011-12, only £0.9 billion was successfully surrendered by departments through the Budget Exchange, and will now be available to be spent in 2012-13. This means that over 2011–12 and 2012–13 the total government deficit is on course to be £4.4 billion lower (i.e. £5.3 billion less £0.9 billion) as a direct result of these underspends.
The majority of individual Whitehall departments underspent on their 2011-12 budgets. The figure below shows, for departments who underspent by more than £0.1 billion, the proportion of their budgets that were surrendered through Budget Exchange (and will therefore be available to spend in 2012-13) and the proportion of their budgets that were underspent and will not be transferred into future years. The department that underspent the largest proportion of their budget was the Department for Energy and Climate Change whose £0.4 billion underspend was 13.9% of their 2011–12 budget. In absolute terms, the largest underspender was the NHS – the biggest Whitehall department – who underspent by £1.7 billion (of which only £0.3 billion was surrendered through Budget Exchange), which is equivalent to 1.6% of its 2011–12 budget.
The use of Budget Exchange varied across departments, even amongst those who ended up underspending on their budgets. For example, the Department for Transport underspent by £0.7 billion (or 5.1% of its budget), of which none was transferred through Budget Exchange, while the Department for Culture, Media and Sport underspent by £0.1 billion (or 5% of its budget), of which around half was transferred to 2012-13 through Budget Exchange.
Figure: Underspends by departments (departments who underspent by more than £0.1 billion)
Note: Chancellor’s Departments includes HM Treasury, National Savings and Investments, Government Actuary’s Department, HM Revenue and Customs, National Investment and Loans Office, Royal Mint and Crown Estate Office.
Small underspends would not be surprising – indeed it would be amazing if every department managed to spend its allocation exactly. But relatively large underspends that are not qualifying for Budget Exchange might seem strange, and particularly so in an era where most departments are facing cuts. One possible explanation is that departments have been trying hard to ensure that they do not end up with an overspend, which might be particularly unfavourably looked on by the Treasury in the current era of austerity. Another is that Whitehall departments have looked ahead to the cuts they face in 2012–13, 2013–14 and 2014–15 and decided that over-delivering on the cuts to date would leave them better placed to keep within these tight budgets going forwards. Departmental spending plans for 2012-13 now currently imply an average real cut of 0.8% in real terms from their 2011-12 level, which would have been a 2.6% average real cut if departments had spent their planned budgets in 2011-12. Whatever the motivation behind the underspends, to the extent that departments are underspending while still maintaining the quality and quantity of public services being provided, this is good news.
IFS public finance observations are generously supported by the Economic and Social Research Council (ESRC).
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Cutting the deficit: three years down, five to go?
The UK is in the fourth year of a planned eight-year fiscal tightening. Following further announcements made in Budget 2013, this fiscal consolidation is now forecast to total £143 billion by 2017–18. The UK is intending the fourth largest fiscal consolidation among the 29 advanced economies for which comparable data are available. By the end of this financial year, half of the total consolidation is expected to have been implemented. However, within this tax increases and cuts to investment spending have been relatively front-loaded, while cuts to welfare spending and other non-investment spending have been relatively back-loaded.
The March Budget forecast that borrowing would fall by £0.1 billion from £121.0 billion in 2011–12 to £120.9 billion in 2012–13. On Tuesday, the Office for National Statistics is due to release its first estimate of public sector net borrowing in March 2013 and, therefore, for the whole of 2012–13. Borrowing could easily end up being higher or lower than it was in the previous year, either due to backwards revisions, the uncertainty inherent in forecasting borrowing even a month in advance, or both. However, whether borrowing is slightly up or down in cash terms is economically irrelevant. Either way, the bigger picture is that having fallen by roughly a quarter between 2009–10 and 2011–12, borrowing is forecast to be broadly constant through to 2013–14.
Women working in their sixties: why have employment rates been rising?
Employment rates through the recession have been remarkably robust, with today’s ONS figures showing employment remaining close to 30 million. The young have experienced historically low employment rates and high unemployment rates but the employment rate of women aged 60 to 64 has increased as fast since 2010 as it did during the 2000s. An important explanation is the gradual increase in the state pension age for women since 2010, which has led to more older women being in paid work. Without this policy change, the employment rate for 60 to 64 year women would have been broadly flat since 2010.