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25 November 2015
George Osborne’s Spending Review delivered a blizzard of cash and promising-sounding reforms. Impressive ‘white rabbits’ were produced in the shape of a U-turn on tax credit changes, protecting the police budget in England and Wales, a big cash boost for infrastructure and relatively generous increases for the NHS. In large measure this was achieved by stronger tax receipts modelling assumptions from the OBR and a small upward revision of growth projections in 2016 and 2017. There were also some “slight of hand” tax rises on insurance premiums tax and vehicle excise duty, reductions in pensions tax relief and an slower pace of deficit reduction over the Parliament. The “cap” on welfare spending will be in breach for three years before being met – along with the government finances getting “back in the black” and meeting the fiscal mandate – in 2019/20. In many senses this echoes the Chancellor’s previous tactic of overpromising and under delivering spending reductions – with real-terms cuts to departmental spending now just over 10 per cent overall compared to the 30 per cent projected in the March 2015 Budget.
With the softer-than-expected number-crunching out of the way, the Government will now turn to delivery, following the announcement of new proposals and fleshing out of existing ones. There was an extension of student loans to replace maintenance grants, a new national funding formula for schools and, in particular, a renewed focus on devolution. There was an option for local authorities to levy a new social care tax, (a sector we at Reform identified recently as in crisis). More powers for elected Mayors were announced over transport, skills and limited powers over infrastructure-related revenue raising. It was confirmed that local authorities will be allowed to keep all revenue from business rates, with local government grants phased out entirely. This gave a strong flavour of the drive to disaggregate Britain’s highly unitary tax-and-spend public sector; clearly a welcome direction.
The Chancellor will doubtless be pleased with the headlines tomorrow – having headed off accusations of cutting the police at a time of rising security concerns and acting contrary to the spirit, if not the letter, of the Government’s welfare reforms in encouraging people to move into, stay and progress in work. Many in Whitehall may well be breathing a sigh of relief – but that would be a mistake. Increased or protected funding should not be an excuse to avoid radical reforms – of which relatively few were announced today. Delivering the Spending Review successfully will require fundamentally new policy thinking across the public sector, from policing, to working-age welfare, education, health and pensions – a formidable task. We may well come to look back on today as “the easy part”.
Ed Holmes, Senior Researcher, Reform