The recent financial crisis and associated recession meant that a significant fiscal consolidation was necessary to restore the public finances to a sustainable long-run path. Between 2010–11 and 2014–15, total public spending has been cut by 3.0% in real terms, resulting in a dramatic fall in public spending as a share of national income. Different areas of spending have fared very differently over this period of austerity. Between 2010–11 and 2014–15, departmental spending was cut by 9.1%, compared with a 2.4% increase in non-departmental spending. Within departmental spending, health, schools and official development assistance have been protected, while other areas have been cut dramatically.
The recent financial crisis and associated recession opened up a hole in the public finances. Without any policy action since the 2008 Budget, borrowing would have remained permanently around 10% of national income, which would not have been sustainable. A significant fiscal consolidation therefore became necessary to restore the public finances to a sustainable long-run path. Successive governments have increased taxes and cut spending in order to reduce public borrowing, and the vast majority of the consolidation is planned to come from spending cuts.
Between 2010–11 and 2015–16, total public spending is planned to be cut by 3.0%. However, this overall change in total spending masks the very different experiences of different areas of spending. Figure 1 illustrates how departmental spending (DELs) – which includes the administration and delivery of public services – is planned to be cut by 10.2% over this period, while non-departmental spending (AME) – which includes spending on social security and debt interest payments – is forecast to increase by 3.2%.
Under the Conservative government's July 2015 Budget plans, total public spending will increase by 0.6% between 2015–16 and 2019–20. However, within that, departmental spending will be cut by 2.9%, taking the cut since 2010–11 to 12.8% and leaving departmental spending around the level it was in real terms in 2004–05.
Within departmental spending (and within non-departmental spending), the cuts have also been highly uneven. Figure 2 shows how the cuts to departmental spending between 2010–11 and 2015–16 were allocated across departments. Spending on international development increased in order to meet the government’s international commitment to spend 0.7% of national income on overseas aid by 2013. The government also protected NHS spending and schools spending, and the Department of Energy and Climate Change saw an increase in its budget to increase investment in green technology. In stark contrast, the budget of the Ministry of Justice, the Department for Work and Pensions and the central government grant to local authorities (the 'CLG Local Government' budget) were cut by over a third, and several other departments saw their budgets cut by over 25%.
Figure 2. Real-terms % cuts in departmental expenditure limits, 2010–11 to 2015–16 [Download the data]
The cuts to departmental spending in 2016–17 to 2019–20 will be allocated between departments in the Spending Review that will be published on 25 November 2015. To find out more about the outlook for the 2015 Spending Review, visit our online guide and spending review calculator here, or read this briefing note.