Budget 2016: time to act

15 March 2016

These are testing times for the Chancellor. Less than a month after being handed a £27 billion windfall before last year’s Autumn Statement, storm clouds began to form. Around Christmas, the Office for National Statistics revised down growth forecasts for the UK economy and downsized its estimate of the total size of the UK economy by £18 billion. All being equal, amended GDP figures would reduce tax revenue by £9 billion each year across the parliament – wiping out the Chancellor’s desired budget surplus in 2019-20.

These figures – coupled with global economic uncertainty – are stark. But they present the Chancellor with an opportunity to build a sustainable approach to spending – allowing the Government to “act now so we don’t pay later”, as Osborne told the BBC’s Andrew Marr Show. The Chancellor should practice what he preaches tomorrow and act in three key areas.

The first is the £40 billion central government spends each year procuring goods and services. Whitehall could save up to £10 billion a year by making greater use of digital procurement portals, which replace traditional, paper-based approaches with Amazon-like catalogues of goods and services. These savings will only materialise, however, if the Government matches international best practice by increasing the amount it channels through digital portals to 50 per cent of total procurement spend, from its current one per cent.

Reforming pensions is long overdue. The triple lock on the State Pension – which uprates pensions by the higher of CPI inflation, average earnings or 2.5 per cent costs – will increase government debt by 26 per cent of GDP over the next 50 years. The Chancellor should replace it with an earnings link to protect pensioner incomes and save taxpayers £6 billion a year by 2020.

Welfare spending provides another opportunity. The Chancellor has breached his self-imposed spending limits on a system that demands reform to increase employment. Out-of-work sickness and disability benefits cost some £14 billion each year and do not serve the needs of 2.5 million working-age people. As Reform has argued, creating a single out-of-work benefit for those who are unemployed would reduce disincentives to enter the labour market and could deliver savings as people move into work.

The Chancellor is therefore right to recognise that there are opportunities to find “further efficiencies in government.” His intentions to cut spending by £4 billion are welcome. But Osborne is quickly running out of chances to “fix the roof while the sun is shining”. To achieve his budget surplus and put public finances on a sustainable footing, Osborne’s Budget must be bold and find further efficiencies where they exist. Implementing these reforms really would mean acting now to avoid paying later.

Alexander Hitchcock, Researcher, Reform

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