Ring-fencing the NHS and schools is no longer viable

The chancellor went on the Today programme this morning to trumpet his success in getting seven government departments to agree on their budgets for 2015-16 as part of the Spending Review that he will announce on 26 June. It is reported that they have all agreed to cuts of between 8 and 10 per cent.

By Tony Dolphin, chief economist at the IPPR

The chancellor went on the Today programme this morning to trumpet his success in getting seven government departments to agree on their budgets for 2015-16 as part of the Spending Review that he will announce on 26 June. It is reported that they have all agreed to cuts of between 8 and 10 per cent.

However, he has gone for the easy targets first.

Three of the seven departments that have settled (HM Treasury, the Foreign Office and the Cabinet Office) have only small, largely administrative budgets. So, while the budgets of the other four (Justice, Communities and Local Government, Energy and Climate Change and the Northern Ireland Office) are more substantial, so far he has only secured around 20 per cent of the £11.5 billion in cuts that he needs if he is to stick to the total departmental spending target set out in the March budget.

Achieving the remaining 80 per cent of the cuts is likely to be a lot harder. The big spending departments – Defence, Business and the Home Office – are all headed by secretaries of state who have been prepared to use the media to highlight the possible effects of further big cuts in their budgets. They represent the so-called ‘Union of Ministers’.

There have been reports that one secretary of state is willing to offer up more cuts. Iain Duncan-Smith is said to be willing to find an additional £3 billion in cuts to the welfare budget, by restricting housing benefit for those aged under 25 and welfare payments to those with three or more children, so that the Home Office and Ministry of Defence budgets can be protected.

George Osborne would probably like to take him up on this offer because he is thought to be planning to argue at the next election that only the Conservatives would be tough on welfare in order to protect departmental spending, while Labour, ‘the party of welfare’, would have either to make bigger cuts to departmental spending or increase taxes. But he is stymied by the Liberal Democrats’ determination not to agree further cuts in working age benefits.

However, he has bigger constraints than those placed on him by the Liberal Democrats, and these are of his own – and the prime minister’s – making, in particular the decisions to ring-fence welfare spending on older people, the NHS, schools and international development.

Restricting the winter fuel allowance and free bus passes to only the poorest pensioners, a move that is often talked about but was ruled out by the prime minister in the pre-election debates, would make small but significant savings. To maintain the ‘triple-lock’, which guarantees that the state pension will increase by whichever is highest out of price inflation, wage inflation or 2.5 per cent, is expensive. So means testing other pensioner benefits which are currently universal for older people, feels like a reasonable compromise.

The International Development budget is not large in the context of overall public spending (£10.7 billion in 2013-14 out of a total of £720 billion). Cutting it back would involve reneging on the country’s commitment to increase its aid spending to 0.7 per cent of GDP and hit the poorest people in the world, without making much of a contribution to the needed spending cuts.

The same is not true of the NHS and schools budgets, which by 2014-15 will account for around 43 per cent of departmental spending. If they could be cut, the pressure on other budgets (especially social care and early years) would be far less.

Yet, even continuing with a ‘flat real’ settlement will take the NHS into truly unchartered territory, given its history of long-run average real increases of 4 per cent a year. By 2017, the NHS is very likely to have had six years without a real spending increase. But to spend more in the short term would imply a scale of cuts to other public services that is completely untenable.

Against such a backdrop, the NHS requires certainty and the permission to take some unpopular decisions. A 10-year settlement for the NHS and social care, in return for a reform plan would give health professionals and managers the space and freedom from political interference they need to make far-reaching cost savings.

By the time these cuts are fully implemented, on the government’s current approach, other departments could have seen their budgets cut in real terms by one-third. This represents a massive reallocation of government spending to the NHS and schools; the sort of reallocation that should follow a systematic review of spending that weighs up the benefits of spending on the NHS and schools against other spending.

It should not emerge as a by-product of promises made at a time when the full extent of those spending cuts was neither appreciated, nor debate.

4 Responses to “Ring-fencing the NHS and schools is no longer viable”

  1. tris

    Surely if he just shut down some of the loopholes that allow the rich to get away with avoiding tax, he wouldn’t have to hurt old people, sick people and children with even more cute.

    Maybe if he said, look, we’re no longer a big, rich and important country…we can’t afford to have nuclear weapons and go around killing Muslims for their oil, on demand from the US president, and we certainly can’t afford the fourth largest military spend in the world, he could find money for running British institutions,

    There’s far too much money spent on killing in the UK budget.

    Still, that wouldn’t get votes in the South East of Toryland, sorry, England, so that’s a no no.

  2. Emmetgrogan

    I have to worry when Public policy is dictated by economists. Tonys article has (through omission rather than by design) looked at the systems and interrelations of departmental budgets and the likely impact of a change in budget A on budget B,whereas we actually need to look at the effect of budget A changes on the PEOPLE that budget A and budget B provide services for. Over the last twenty of so years (I wont mention the T word, or her successor the B word (followed by the odd sounding Scottish guy, wassisname) public policy discourse has become dominated by ‘how much money is there in the budget’ rather than how can we help people who need help. The tragedy is that all party agreement seems to have been reached on the question of borrowing by Government, (Fukayama is right even though he now admits he is wrong) and the misconception that a states economy is like a household budget. On a whimsical note, I’m not going to destabilise some of my neighbours lives ‘cos I’m a bit short towards the end of the month. Governments (all governments) have the potential and , too often a history of doing just that.

    I have a dream, that doesnt quite match up to Martin Luther King Jr’s but put simply it involves a cabinet meeting deciding on the social priorities and then getting the money to achieve these. For too long its been the reverse, and the consequent entrenchment and growth of the chav class (Murrays term Underclass more acceptable these days? Or can I use Lumpen Proletariat?) has been one of the negative outworkings of this school of thought.

  3. JosBell

    goodness me – this is indeed a cut-hungry piece! Has the author not
    realised that austerity measures are so yesterday? Perhaps taking a look
    at this problem from a different socio-economic stance might be more

    Firstly an overt keen-ness to cut public services in
    this way is not a good look. Nor has NHS funding been ringfenced by the
    Coaltion – believing what Cameron says is a fool’s errand. Front line
    staff are being cut in droves and in some hospitals 7 beds per week are
    disappearing – this is the reason for the A&E crisis, not an
    increase in the elderly as Hunt would have it!

    The disabled and
    jobless are already suffering horribly, so extolling the notion of more
    cuts in that direction is frankly inhuman.

    There are many ways to bring more money into the Exchequer such as via tax avoidance legislation.

    it is notable that for every £1.00 spent on early intervention there is
    a saving of £8.00 in terms of future dysfunction/crisis spend per
    individual. Clumsy cutting is not a long term cost saver.

    Please think again IPPR – this is dangerous talk whch puts both lives and our future society at risk.

  4. Sean Carroll

    For a so-called left wing site, the discourses on it are very much accepting of the neo-liberal basis of your political parties’ economic direction. Given the breadth of the UK’s problems, I am surprised that you are just rehashing the discussions from the previous 20 years which seem to have left your ‘nation’ in an unconfident mood with significant income disparity issues, failing education policies and disunity.

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