The NHS and the Treasury appear to be in deadlock over the amount of necessary money the health service won’t be allowed to have. Remember, it needs £22 billion but will only get a maximum of £8 billion by 2020.
It is important to remember that grants to the devolved governments of Scotland, Wales and Northern Ireland are dependent on the amounts being allowed for English services. Not only does that mean Conservative MPs should not criticise spending choices made by those governments, which are dictated by the amounts they receive from Westminster, but there are also implications relating to English Votes for English Laws.
The rest is self-explanatory.
The core of next week’s Spending Review is now becoming clear. If the Treasury delivers the pre-announced scale of cuts we will see five ‘big losers’ in Whitehall including, surprisingly for some, Education.
On the protected departments, the key is that the share of total spend that is protected is significantly greater than in the Chancellor’s previous Spending Review… both because more departments have been protected (the Defence budget will rise not fall this time) and because five years of cuts to unprotected departments have already made them a smaller part of the overall pie.
The impact of this protection is to triple the scale of the cuts facing unprotected areas, compared to a world in which the cuts are spread across all departments.
The key unknown within the protected budgets is the exact settlement for health spending: not how much (given that the government has committed to £8 billion extra by 2020-21) but when. With many trusts facing big deficits this year it will be a test of Simon Stevens’ negotiating skills to see how much of that spend will be front-loaded into the next few years.
The grants to Scotland, Wales and Northern Ireland also represent a very large chunk of spending that can’t be directly cut. Instead those budgets will be a function of other (mainly English) spending. Because that includes the English NHS boost, the average cut to these devolved budgets is relatively small. But we will be looking for any changes to how the Barnett formula will operate, given additional fiscal devolution and the introduction of a new ‘funding floor’ for Wales.
On the unprotected side, seven mid-size departments have already settled their resource budgets (plus some smaller bodies and the tiny Scotland/Wales/NI Offices), with an average cut of 24 per cent.
HMRC and DWP, the two settled departments with budgets over £3 billion, are part of an average cut of just 21 per cent. For them, the real unknown for Wednesday is now whether there will be fudge or a welcome reversal on tax credits, and what other welfare and tax changes might be planned.
If the overall savings target remains unchanged and is to be met, the below-average cuts agreed by these seven departments have obvious repercussions for those yet to settle… The cash value of the cuts announced so far (in the region of £4-5 billion) does not even cover the boost to NHS England (an estimated £6.4 billion by 2019-20). That is to say they are about changing the shape of the state (more health, less everything else) rather than shrinking it.
All of which means the remaining departments left to settle must deliver in the region of £18 billion of savings. In practice, just five can make a meaningful contribution to that total.
These ‘big losers’ are Business, the Home Office, Justice, local government and non-schools education… [They] could face average cuts of 30 per cent, if the scale of spending cuts outlined by the Treasury is to be delivered.
Education… makes it on [this list] because its protection only applies to the 5-16 schools spending, leaving sixth forms, the care system, teacher training, under 5s and even some elements of 5-16 schooling like the Pupil Premium and Free School Meals.
The scenario we set out is based on the Treasury sticking exactly to the spending totals from the Summer Budget – an outcome which is far from certain. It also focuses solely on resource spending, while for some departments like Transport what really matters next Wednesday is their capital allocation.
Unlike previous spending reviews, overall DEL spending (what’s called the ‘spending envelope’) has not been firmly set in advance. Indeed the Summer Budget was unusual in specifically leaving leeway for the fact that it could change. That might be to reflect a changed economic or fiscal forecast, to allow borrowing to take more of the strain or because of further tax rises or benefit cuts.