The significance of the Spending Review

June 25, 2013 at 13:38

In 2010 the Spending Review set departmental expenditure limits (DELs) from 2011/12 to 2014/15, outlining details of savings in the region of £86bn over that time.

Tomorrow, nearly three years later and not much closer to eliminating the structural deficit, a new Spending Review will set DELs for the year 2015/16, aiming to achieve another £11.5bn of cuts. The next general election is set for 2015 and Labour has already said they will honour DELs set for the 2015/16 financial year.  The significance of this review is not necessarily the length of the period to which it refers though, but how it signals possible political movements in the years that follow, where it seems likely that more painful cuts are in the pipeline.

Unsurprisingly, there have been calls from some to lift protections on those budgets where they still remain – the NHS, schools, international development and parts of welfare.  Budget 2013 did reveal plans to reign in welfare expenditure, which is currently not covered by a DEL due to changing demands year on year, and instead is categorised as Annually Managed Expenditure (AME).  We expect to find out more about how AME spending might be controlled tomorrow.  With limits in specific areas being one of the tabled options, how this plays out in practice is likely to be of interest to many charities, and could affect demand for their services.

To keep in line with current agreed policy, which has already seen the Government forced to extend its targets for eliminating the structural deficit, departments are looking at an overall reduction of 2.8% in 2015/16.  However, with the ring fenced budgets accounting for around 60% of total departmental spending, many other departments are facing reductions of between 8 and 12% (the Home Office has reportedly agreed on a 7.7% cut, BIS on just under 10%, Defence around 5%).

The Charity Commission’s budget has already been cut by around 50% in real terms as a result of the 2010 Spending Review. It has called on Government to recognise that it cannot take on further reductions without reducing its effectiveness as a regulator.  The Commission has faced high levels of scrutiny from Parliament in recent months, and while the Public Administration Committee report gave a nod to arguments around constrained resources, criticisms around efficiency and effectiveness have come to the surface.

It will be important for CFG and others to look at how any further cuts might impact on the capacity of the Commission to provide support and guidance.  Some of the proposed solutions to Commission resourcing that have been reported are also likely to be hotly debated, such as top-slicing of Gift Aid or charging a levy on charities.

At the top of the list in order of direct importance for many charities, is the percentage cut to local government budgets, which have already seen cuts greater than those allocated elsewhere.  In this latest round of savings local government is likely to see further reductions of more than 10%. If confirmed this will add to their pressure to keep costs down, suggesting things are going to get a lot harder before they perhaps get easier for many charities experiencing high demand and reliant on this income stream.

CFG will be watching the Chancellor give his speech tomorrow and we will be particularly interested in his plans for AME, local government, health and social care spending, and of course anything affecting the Commission.  While we might not see any big surprises tomorrow, the review and reactions to it should give a clearer view of economic focus and direction beyond the next election from all parties.