IFS Post-Spending Review Analysis
A joint Spending Review and Autumn Statement was delivered by the Chancellor of the Exchequer, George Osborne, on Wednesday 25 November.
The following day, IFS researchers presented their analysis of the newly announced spending allocations for government departments and look at what the Chancellor said on the public finances and the tax & benefit system.
- Paul Johnson, Opening remarks: IFS Post-Spending Review/Autumn Statement Analysis, November 2015 [watch recording]
- Andrew Hood, Benefit and tax credit changes [watch recording] (Additional distributional analysis by James Browne and Andrew Hood.)
Background to the 2015 Spending Review
The IFS has published a set of background materials in the run up to the 2015 Spending Review
• Outlook for the 2015 Spending Review
A background briefing note sets out the constraints facing the Chancellor (pdf), given the plans for the public finances that he published in the July Budget.
- The plans set out by the Chancellor in the July 2015 Budget imply that departmental spending is to be cut by £11.3 billion (3.2%) in real terms between 2015–16 and 2019–20. Within that, capital (investment) spending is planned to increase by £4.9 billion (11.5%) while resource (non-investment) spending is planned to be cut by £16.2 billion (5.1%).
- In the absence of further changes to the government’s planned level of total spending or forecasts for non-departmental spending, it will be cuts of this order that the upcoming Spending Review will allocate between departments.
- The government has already pledged to increase real-terms resource spending on the National Health Service, the Ministry of Defence and official development assistance and essentially to freeze real-terms resource spending on schools. Taken together, these pledges amount to around £7.6 billion by 2019–20. This means that other ‘unprotected’ departmental resource spending would need to be cut by £23.7 billion (18.8%) between 2015–16 and 2019–20. These departments also experienced significant cuts in recent years: the cut between 2010–11 and 2019–20 would be £64.9 billion (38.8%).
- After taking account of resources that will be devolved through block grants to Scotland, Wales and Northern Ireland through the possible operation of the Barnett formula, this would leave other Whitehall departments facing an average cut to their resource budgets of around 27% between 2015–16 and 2019–20. Over the period from 2010–11 to 2019–20, the total real cut to this resource spending would reach around 50%.
- In practice, some departments would be expected to fare better than this and others worse, depending on the government’s priorities. In response to a request from HM Treasury, departments have provided an assessment of the implications of cuts to their resource budgets of 25% and 40% between 2015–16 and 2019–20.
• Autumn Statement 2015: the first test for the Chancellor's welfare cap
As George Osborne prepares for his combined Autumn Statement and Spending Review announcement, figures released on Friday 20 November by the Office for National Statistics suggest that he is on course to slightly overshoot the latest official forecast for borrowing this year of £69.5 billion.
An Observation article by IFS researchers explains that Mr Osborne faces two big challenges to meet his plan to cut borrowing and achieve a surplus by 2019–20.
The first is to divide up the shrinking budget for day-to-day spending by departments, while continuing to protect many areas of spending. The second is to remain within his welfare cap while taking on board the recent House of Lords motion that he must reconsider the tax credit cuts he announced in July.
• Be the Chancellor and set your own Spending Review
An online calculator developed by IFS researchers allows you to act as Chancellor and conduct your own Spending Review. Complete with data visualisation and infographics, the interactive tool guides you through the headline plans the Chancellor has made, and lets you make your own decisions about how to allocate spending between government departments.
• Online resource on public spending in the UK
Visit our new online resource offering an introduction to public spending in the UK.
You can look at trends in total public spending over time, find out what the money is spent on, compare UK public spending with other countries, and see how spending on health, education, defence and other areas has changed.
Tax and benefit changes and the new ‘National Living Wage’
It is possible the Autumn Statement may include new announcements on tax credits.
A recent IFS Briefing Note, prepared for the House of Commons Treasury Select Committee and published on 9 September, documents the estimated distributional impact of the tax and benefit changes that have been announced for implementation in the current parliament. It then considers the extent to which households might expect the net losses from these changes to be offset through increased wages as a result of the large increase in the minimum wage for those aged 25 and over that was announced in the July 2015 Budget. A press release on 9 September summarised the main findings.
Separately, the IFS published on 19 November a comprehensive analysis of the impact of the government’s current tax and benefit plans and the National Living Wage on household incomes and financial work incentives. An Observation article summarises the main findings of the full report. It finds that both the package of tax and benefit changes, and the new ‘National Living Wage’ will, on average, strengthen incentives to move into paid work and to work more if in work.
Funding the thin blue line
Public spending on the police was cut by 14% in real terms between 2010–11 and 2014–15. An Observation article, published on 17 November, placed these spending cuts in the context of the large spending increases over the 2000s. The new IFS research explored the differences between police forces in how they fared over these two periods.
English schools will feel the pinch over the next five years
It described how day-to-day spending on schools was protected from cuts in the last parliament and explained that the new Conservative government has announced protections for schools spending in this parliament too. However, rising costs mean that schools are likely to face real-terms cuts on spending per pupil for first time since the mid-1990s. Although the cuts are likely to be smaller than those seen across other areas of government spending, these will leave schools facing significant challenges over the next five years.
IFS materials on previous Budgets
Autumn Statement documentation is available here. The Treasury's home page links to previous and current Budget documentation. The Office for Budget Responsibility's publications and economic and fiscal forecasts can be found here.