‘No fat left to trim’: how spending cuts could affect UK government

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After being named as Tory party leader and the next prime minister, Rishi Sunak warned MPs that the UK faced”a profound economic challenge”. Jeremy Hunt, the chancellor, at least for now, has previously said no option is off the table when it comes to filling the ?40bn black hole in the public finances identified by the Institute for Fiscal Studies (IFS). We look at how government departments would cope with spending cuts.

Department of Health and Social Care

How did austerity affect the department?

The NHS in England gets its budget from the DHSC, which hands the health service the vast bulk of the money it gets from the Treasury.

Analysis by the Health Foundation charity shows that during the 13 years of the last Labour government (1997-2010), the NHS in England received average annual budget rises of 6%. However, that shrank dramatically to 1.1% under the coalition (2010-15) and 1.6% under David Cameron and Theresa May (2015-18), but rose again to 3.4% with the extra funding May announced in 2018. That is against a backdrop of a growing and ageing population.

Thus in spring 2020 the health service began confronting the many new challenges posed by Covid after a decade of “stagnation in terms of the resources available”, according to the Nuffield Trust thinktank.

How has the department recovered since then and what is its position now?

The NHS has not recovered. Its performance has got progressively worse since 2015. Most of its visible problems – especially its inability to meet key targets on A&E and cancer care, surgery and diagnostic tests – can be traced directly to its budget being constrained for years despite growing demand. A worsening workforce crisis and the inadequacy of social care are inextricably linked to austerity funding of care services and the holding down of care workers’ pay. However, social care is funded by the Department for Levelling Up, Housing and Communities, not the DHSC, and has suffered much deeper cuts than the NHS.

The NHS was already struggling to meet treatment targets before Covid and the pandemic has exacerbated that problem and also contributed to a major new problem – the recent collapse in ambulance services’ response times to 999 calls.

What would suffer most if further cuts were imposed?

NHS bosses are “incredibly concerned” about what renewed austerity would mean. “There is no fat left to trim and patient services will inevitably be cut if the NHS is expected to find any further savings” and patients may even die, the NHS Confederation warned this weekend. It would be a mistake to impose another decade of austerity on the NHS, said Matthew Taylor, the confederation’s chief executive.

NHS England’s budget is already under serious pressure because of inflation, its “efficiency” drive, Covid costs and having to spend ?1.8bn to part-fund the pay rise for NHS staff.

Ministry of Defence

How did austerity affect the department?

Defence spending has been in steady decline since the easing, then ending, of the cold war, which led to the “peace dividend” of the 1990s. There was a slight increase in the budget after 9/11, which as a proportion of GDP was 2.6% in 2003, the year of the Iraq war. Roughly, that held to the end of the decade.

It was the Conservative-led coalition that, during the years of austerity, further slashed defence spending. The budget tumbled to 2% of GDP by 2015. During that time many parts of the armed forces were cut back, including more than 20,000 from the size of the British army following the end of combat operations in Afghanistan.

Has the department recovered since then and what is the position now?

There has been relatively little change since, despite two changes of prime minister. UK defence spending is now at 2.1% of GDP, a total of ?48bn. Money has been shifting away from personnel to equipment and the size of the British army is scheduled to be cut further to 72,500, the smallest since 1714.

However, Russia’s invasion of Ukraine and a desire by recent governments to show some form of post-Brexit international leadership have prompted a succession of promises to reverse the cuts and more.

Boris Johnson vowed to lift the budget to 2.5% of GDP by 2030, only for Liz Truss to increase that commitment to 3%. That makes defence the only major government department to expect its spending to rise, to about ?100bn in 2029-30. That includes a real-terms increase of ?23bn (the rest is accounted for by inflation).

It would be the biggest budget increase since the early 1950s, the time of the Korean war.

What would suffer most if further cuts were imposed?

The immediate question is whether the 3% commitment will hold. The new chancellor, Jeremy Hunt, had said no department would be immune to efficiency savings, prompting the defence minister, Ben Wallace, and one of his deputies to threaten to resign last Tuesday if the 3% pledge was not honoured by Truss. Within a couple of hours No 10 said it would stick to the 3%.

Department for Education

How did austerity affect the department?

The education sector in England was shielded from the worst of austerity that followed the global financial crisis. Spending on education had risen sharply under Labour, reaching 5.6% of UK national income by 2010. The subsequent administrations led by Cameron maintained a policy of ringfencing spending on pupils up to the age of 16, which largely protected schools from the cuts suffered by public services outside the NHS.

Higher education experienced something of a boom, after a radical overhaul of student finance in 2012 nearly tripled the undergraduate tuition fees received by universities. But the unprotected parts of the sector suffered badly: adult education budgets were slashed, while funding per student at further education and sixth-form colleges endured a decade of sharp decline. As a result, education spending in 2020-21 had fallen to 4.8% of national income.

Has the department recovered since then and what is the position now?

Johnson’s government offered the first significant improvement in state school funding in England for more than a decade – this year direct funding for pupils aged five to 16 will reach nearly ?54bn, a rise of ?9bn from two years ago. But unexpectedly high energy prices and unfunded teacher pay increases of 5% mean the extra cash has already disappeared, leaving schools no better off than in 2010.

The 2018 introduction of a national funding formula has made matters worse for some: while school budgets in richer areas have grown, the most deprived secondary schools outside London have been hit by a 15% drop in spending per pupil. At universities, undergraduate tuition fees have been frozen at ?9,250 since 2016, falling by a third in real terms and no longer covering the cost of many courses.

What would suffer most if further cuts were imposed?

For schools and colleges in England, the outlook was already bleak, with the IFS estimating that real-terms spending per student will be 3% below 2010 levels within two years. Early in 2023 there are almost certainly going to be strikes over pay by teachers and support staff in Great Britain.

Higher pay and the realities of higher inflation give the Department for Education little room to cut its budgets by the Treasury’s target of 2%, with the bulk of the department’s ?95bn directly allocated to schools, colleges and universities. That leaves the DfE around ?10bn to find ?1.8bn of savings, with ?5bn in capital funding for building a probable target, meaning further delay in overhauling England’s creaking school estate. Meanwhile, raising free school meal funding from its daily rate of ?2.47 is a remote prospect – despite 1.9 million children depending on them each lunchtime.

Department for Work and Pensions

How did austerity affect the department?

UK austerity targeted the welfare budget during the 2010s, stripping ?37bn from benefits and introducing high-profile social security cuts such as the two-child limit and the benefit cap. Benefits have remained meagre, aside from a temporary ?20 a week Covid uplift to universal credit during the pandemic.

Has the department recovered since then and what is the position now?

That is the grim backdrop to the mooted real-terms cuts to universal credit and other working-age benefits next April. It may save ?3bn, but it would sink the real value of unemployment benefit to 1982 levels, as inflation soars. Some households would be hundreds of pounds a year worse off, with an extra 450,000 people pushed into poverty.

What would suffer most if further cuts were imposed?

By contrast, the value of state pensions, on which the UK spends ?120bn annually, has been underpinned in recent years by the triple lock. If the government keeps the lock, state pensions would rise next April by 10.1%, or about ?442 a year, taking it to its highest real value ever.