One of the biggest giveaways in the budget was the announcement of additional NHS spending for this year and the following two years. In addition, a further £3 billion is to be allocated to departments for spending over the next two years to help to prepare for Brexit. But the outlook for day-to-day spending still appears to be very tight and in future years there are likely to be further budget top-ups.
After inflation, per capita day-to-day spending by central government departments is now 10 per cent lower than what it was in 2007-08. Since the budget did not provide additional funds beyond March 2020, further cuts of over 3 per cent over the next five years are planned.
Funding to the NHS, the public service with the largest budget, is going up, but these increases are far below what the NHS typically received prior to the Great Recession. And all of the planned increase to NHS spending over the next five years is likely to be absorbed by the fact that the population is not just growing, but ageing too. The baby boomers born just after the Second World War are now reaching older ages, for which increased use of healthcare, and increased use of more expensive healthcare, is more common.
An overall cut to per-capita day-to-day spending, while NHS spending rises, means that other public services are facing a tighter budget settlement. Over the next five years their spending (again looking at day-to-day spending per capita) is set to be cut by over 6 per cent. One option for the government is to try to squeeze greater efficiencies out of spending departments. But after years of cuts the scope for easily identifiable and deliverable cost-saving measures might be more limited. Indeed the budget reined back the scale of the savings that George Osborne had announced would be freed up from 2019-20 budgets.
Additional pressures are also clearly mounting over time. The public sector pay cap was lifted in the budget. The Treasury has committed to financing the cost of any increase in pay for nurses and others covered by the NHS Agenda for Change contracts. This could come in at about £700 million. But outside the NHS no other promises have been made. If public sector pay does start to increase — as the budget forecasts — one assumes that this would imply a further £2.1 billion of costs for public sector employers. The Treasury may well find many of these asking for additional resources to help meet these costs.
It will be interesting to see if these requests, or others, will lead to further top-ups in future budgets. And if it happens it certainly won’t be surprising.
Carl Emmerson is deputy director of the Institute for Fiscal Studies. This article was first published by The Times, Redbox and is reproduced here with permission.