In normal times, the Chancellor’s Spending Round decision to bring austerity for public services to a decisive end would be big news. He did, after all, announce the fastest planned growth in day-to-day spending since the heady days of the early 2000s. But other political developments – understandably – stole the show.
Mr Javid’s announcements still deserve scrutiny. In the Spending Round he set departmental budgets for one financial year only (2020-21), pushing back a full multi-year Spending Review to next year. He chose to add £11.7bn to the provisional plans for day-to-day spending in 2020-21 he inherited from his predecessor – plans that already included funding for the five-year NHS settlement. This will mean day-to-day spending on public services growing in real terms by 4.1%, or around £13.8bn, between 2019-20 and 2020-21. That’s enough to reverse around two thirds of the cuts to public services since 2010, but only around one-third of the cuts in per capita terms.
It is crucial, however, to look behind the headline figures. The story since 2010 has been one of steady increases in funding for the NHS, and cuts for almost everything else. So, while overall spending on day-to-day public services in 2020-21 is set to be 3% lower than a decade earlier, once we strip out the Department of Health and Social Care (DHSC), spending is set to be 16% lower. It will take more than one feel-good fiscal event to reverse austerity outside of the NHS.
That being true, there was good news for non-health departments in the Spending Round. There was the pre-announced extra money for schools, and the first instalment towards the recruitment of 20,000 new police officers. But there were also signs that other, more commonly neglected, areas including further education (FE) and the justice system will receive some much-deserved attention and funding.
And, of course, there is local government. Since 2009-10, English local authority spending on services has fallen by around 21% on average in real terms. Within that, adult and children’s social care has been protected, and areas like planning and development, housing and transport services have faced much bigger cuts. As with FE and justice, there seems to have been recognition from within the Treasury that these cuts have gone far enough. The Chancellor announced a £2.9bn increase in local government core spending power. This is made up of a £1.1bn increase in grants (of which £1bn is for social care), £0.5bn of council tax increases for adult social care, around £1bn of regular council tax increases, with the remaining £0.3bn or so coming from inflationary increases in business rates baselines. This funding will undoubtedly be welcome, but big choices remain for the local government finance system – particularly around the distribution of funding across councils.
All signs indicate that the Chancellor’s giveaways will be paid for through higher borrowing. On the basis of the Office for Budget Responsibility’s (OBR) March forecasts, this extra borrowing can – just – be accommodated within the current fiscal targets. But even with a smooth and orderly Brexit, the Government is running the risk of breaching its fiscal rules if, as expected, the next set of OBR forecasts reflect a deterioration in the near-term outlook for the economy and public finances.
The Chancellor may have ended austerity, but only for next year. Given the highly uncertain outlook for the UK and global economy, we’d perhaps be wise not to count our chickens just yet.
Paul Johnson is the director and Ben Zaranko is a research economist at the Institute for Fiscal Studies
The Solace Summit will take place at the Hilton Birmingham Metropole on 16-18 October
