PLMR ANALYSIS: SPENDING REVIEW 2013
£1,206,613,785,207. That is how much debt the UK had at 1pm this afternoon, and the context in which George Osborne’s second Spending Review took place.
In a break from the past, today’s announcement covered just a single financial year, 2015-16, whereas previous reviews have covered a three year period. A sign, perhaps, that the Chancellor hopes the economy will be strong enough to allow him to make a more favourable review prior to the next election?
After the usual speculation and leaks, we now know who the winners and losers are. Priorities include investing in the transport network, integrating health and social care, and maintaining the science budget. Meanwhile savings are being made in the public sector wage bill, the welfare bill, and the administration costs of Government departments.
From a Departmental point of view, the Ministry of Defence under Philip Hammond will see the smallest budget reduction – just 1.9 per cent. There will be no further reductions in the size of the Army, Navy or Air Force. Meanwhile Armed Forces personnel will continue to receive automatic ‘progression pay’ – a benefit all other Government employees are losing.
Total government expenditure for 2015-16 will be £745bn, with £11.5bn of further savings – £5bn of which will reportedly come from further efficiency savings. Overall borrowing for this year is set to be £108bn.
What do all these changes mean? Our expert Team have analysed the Review and assessed the impact on Health & Social Care, Education, Energy & Environment, Planning, Science & Transport and Local Government.
HEALTH AND SOCIAL CARE
Today’s Comprehensive Spending Review has seen no major surprises for the health and social care sector.
As expected, the Coalition has stuck to its pledge to protect funding for health in real terms in 2015-16. While other departments have had to find savings that add up to £11.5bn, the NHS budget in England will rise by 0.01% to £110bn. Overall, health will see a rise in capital spending to £4.7bn.
The Chancellor of the Exchequer highlighted that many older people are still falling through the cracks in care. In order to address this problem, George Osborne announced plans to bring together health and social care budgets in order to create a more joined up service. As such, the Coalition has set aside £3.8 billion into a pooled budget for care services to improve integration at the local level.
This drive towards greater integration is mirrored in plans for the NHS to make an extra £200 million available in 2014-15 to find new systems and ways of working that will benefit both health and social care. It is hoped this investment will provide for better services for older and disabled people to avoid unnecessary hospital admissions.
So why has the NHS got off so lightly when other areas of public spending have been forced to tighten belts even further?
In 2010 the Government made a commitment to protect the NHS as part of the Coalition’s fairness agenda – targeting resources for disabled people, older people, and people with mental health illnesses.
However, this is not to say that the health service has remained unscathed. The £200 million that has been set aside in the NHS budget for integrating health and social care comes in contrast to the substantial cuts local authorities have to make. Indeed, local government is required to make a further 10% budget saving, on top of the 60% saved since 2010.
Moreover, NHS England will lead further work on efficiency savings from 2015-16 to meet rising demand from an ageing demographic. As a first step, the Department of Health will publish plans in the summer for an overhaul of NHS procurement that is designed to save up to £1 billion.
Ros Trinick is an Account Director at PLMR and leads one of PLMR’s Teams working on some of our most important health and social care, professional services, planning and ICT accounts. In her private life she is a Member of the Labour Party, has presented on community radio, appeared on Al Jazeera television commenting on PR, and spent time volunteering in Africa.
ENERGY AND ENVIRONMENT
Those who hark back to the ‘greenest Government ever’ speech will be irked to hear north sea gas, shale gas and new nuclear heralded as the energy of tomorrow in the Chancellor’s speech. Nevertheless the commitment to providing future strike prices for low carbon will provide comfort to the renewables sector and overseas investors. This has been a long time coming.
As a recurrent theme across this Spending Round, both DECC and Defra will see a shift from revenue to capital funding. The devil will be in the detail tomorrow though, as the Rt Hon Danny Alexander MP, Chief Secretary to HM Treasury, will put forward the Economic Infrastructure Plan to the House of Commons. Within this we will see £100 billion of infrastructure projects, including HS2, Crossrail and energy investments.
Digging down into the detailed Spending Round Document, the DECC settlement makes capital provision for investment in innovative energy projects, with £5.3 billion of that funded through energy bills, to enable investment in renewable energy, other projects and to address fuel poverty. Further incentives for uptake of sustainable technologies have also been outlined in the supporting documentation with £430 million allocated to the Renewable Heat Incentive and an increase in the budget cap on that to increase uptake.
Major reform is of course being legislated for through the Energy Bill, currently at Committee Stage in the House of Lords, but today saw the Chancellor reiterate his commitment, albeit in the written rather than spoken word, to low carbon energy projects, with further details due in the much anticipated Investing in Britain’s Future document.
Despite a major commitment to flood defences Defra’s budget has taken a significant hit in this Spending Round, with them required to make 10% savings. A concession to the electorate is continued investment in South West Water, to keep water bills affordable in that region.
How did the Departments fare?
DECC – to make 8% resource savings.
Defra – to make 10% resource savings, but a major investment in new flood defences committed to.
Elin Twigge is an Associate Director at PLMR, working closely with client teams to assess campaign requirements, develop effective strategy and implement tactics that deliver success. Since joining PLMR in 2008 Elin has led on award-winning Media Relations and Public Affairs campaigns, delivered national print and broadcast media coverage, organised visits and speeches with Cabinet Members, facilitated high profile public exhibitions, helped secure planning permission for multi-million pound projects, engaged regularly with MPs and Councillors and acted as a spokesperson for clients when reputations have been challenged.
The Government’s plans for stimulating and strengthening economic growth formed a significant part of the Chancellor’s Spending Round announcement today – not surprising when seeking to divert attention away from enormous departmental budget cuts detailed elsewhere in his report. £100 billion of infrastructure investment to be allocated over the next parliament is good news for the construction industry and for the national economy as a whole. But it’s jam tomorrow, not jam today.
The longer term plans for capital investment in infrastructure to be detailed in Investing in Britain’s Future will no doubt generate positive headlines, but none of these projects are coming on-stream for several years. In fact several, such as High Speed 2 (one of several bête noirs for many in the Conservative heartland) still face stiff challenges in coming to fruition at all.
The lack of investment in supporting the delivery of “shovel ready” construction schemes remains a hindrance to a sector that knows it could be doing more to stimulate economic growth. And there are deep concerns that departmental cuts, particularly in Communities & Local Government (DCLG) and at local authority level, will further slow down an already ponderous system for securing planning consent. Although the small number of big-ticket infrastructure projects the Treasury is trumpeting are green-lit centrally, the vast majority of construction schemes are determined by local councils.
DCLG’s National Planning Policy Framework cut an enormous amount of red tape, but in many local authorities this is yet to reach the coalface. Council planning departments, which have to deliver local planning policy and determine planning applications, have long complained of being under-resourced. This issue will only get worse as local authority budgets continue to be cut back in 2014-15. The real danger is that, without Government intervention in improving the planning delivery system at a local level, construction projects, and the huge contribution they make to the economy, will be held up interminably in a system crippled by lack of investment.
David Madden leads the company’s growing planning practice in addition to playing a key role in our core Public Affairs and Media Relations accounts. With over 15 years’ experience in planning lobbying, David’s work has taken him across the length and breadth of the country. His understanding of the wide ranging nature of local authority decision making structures and planning practice is second to none.
The education sector certainly came out relatively better than others this Spending Review. Perhaps the biggest win for the Department for Education is a real terms protection of the schools budget and the Pupil Premium – confirming the Government’s commitment to supporting pupils from disadvantaged backgrounds. The Government’s agenda to promote expansion of free schools and academies also continues, with funding announced for 180 new Free Schools, 20 new Studio Schools and 20 new University Technical Colleges.
At the same time however, education services see a significant cut, through a reduction in the Education Services Grant by around £200 million in 2015-16. Furthermore, whist the Chancellor didn’t mention the Department’s capital budget in his speech, this will stay the same at £4.6 billion in 2014-15 and 2015-16 – equating to a £1.7bn decrease in real terms.
Higher education and further education will also have a slightly tougher ride, with student maintenance grants to be maintained only in cash terms in the 2015-16 academic year to generate savings of £60 million, and with a reduction of non-participation spending in further education, leading to an anticipated saving of £260 million. Despite this, the Government reiterated its commitment to encouraging students from disadvantaged backgrounds into higher education, through putting the Higher Education Funding Council for England (HEFCE) in charge of administering a £50 million fund as part of the National Scholarship Programme. At the same time, HEFCE has been asked to reprioritise its teaching grant spend to save a further £45 million.
Several aspects remain to be consulted on. Firstly, to address an historic divide in funding between schools in different local authorities, the Government will consult on how best to introduce a fair National Funding Formula in 2015-16 – the subject of much discussion over recent years. In July this year, another consultation will be launched on the details of the new scheme of Tax-Free Childcare announced in the 2013 Budget, to support working families with childcare costs from autumn 2015. It will be interesting to watch how these changes unfold.
Rebecca Newsom works on a number of high profile campaigns in the Education, Renewable Energy, Health & Social Care and Charity sectors. She is experienced in securing national, industry specific and local positive press coverage, and provides project management support for clients through liaising on their behalf with a range of Government departments and agencies, and management consultancies. She also facilitates meetings between clients and key politicians, policy-makers and public figures, and has assisted clients with a range of crisis management needs.
TRANSPORT AND LOCAL GOVERNMENT
The Departments of Transport and Communities and Local Government are two of the severest hit in this spending round, losing 9 per cent and 10 per cent of their total budgets respectively over the next three years. This is on top of the significant cuts both Departments already suffered in 2010. With infrastructure seen as key to delivering economic growth, the Department for Transport capital budget has actually increased by £9.5bn. This is good news for major projects like High Speed 2 and Crossrail but is likely to mean further administrative cuts and staffing losses across the Department and at agencies such as Network Rail. In total the Government has committed to £50bn in infrastructure investment, details of which will be unveiled by Treasury Chief Secretary Danny Alexander on Thursday.
Local authorities face some tough choices over the next few years. Not only must Communities Secretary Eric Pickles deal with a 10 per cent cut to his budget, he must also ring-fence £3bn for capital spending on new houses and provide £200m for a troubled families initiative. This is likely to squeeze the central government grants that the Department gives to councils across the country. A freeze in council tax bills for the next two financial years will leave council chiefs with very little room to manoeuvre and force major cuts to frontline services.
In London, the spending review brought a mixture of good and bad news. The 6 per cent cut to the Home Office is likely to put further pressure on the Metropolitan Police to deliver savings. Meanwhile Transport for London will be required to make further back office cuts (first class stamps, colour photocopying and biscuits in meetings were all forbidden in 2011 anyway). But extra capital spending and a commitment by the Government to examine routes for Crossrail 2 (potentially a £12bn project) are big wins for the Mayor, as are proposals to devolve control of West Anglia commuter rail services to the Mayor (the result of 3 years of lobbying) and a Treasury commitment to look at greater financial devolution to the GLA by 2020.
James Ford is a Senior Adviser at PLMR, as well as an Adviser to the Digital Chamber of Commerce at the London Chamber of Commerce. James was formerly an aide to Mayor of London Boris Johnson (2010-12), specialising in transport, environment and digital policy. Prior to joining City Hall he worked in the Square Mile as Public Affairs Manager for the London Chamber of Commerce and Industry (2004-10).
SCIENCE AND RESEARCH
Science and Research was always going to be a contentious area to reform or reduce Government spending in, not least because of the emphasis and recognition from all sides of the political spectrum of its ability to not only enhance the reputation of the UK across the globe, but also to provide a financial return and support the economy back to growth. In addition, the Chancellor had already hinted science as “a personal priority” for both the short and long term – allaying, to a degree, the fears of the scientific community.
Because of this, science and research investment was always going to be safer than other areas of public spending – despite not being explicitly ring-fenced as are those for the NHS, Education or International Development.
The widest speculation in this area was that the Chancellor may move the Medical Research Council’s budget from its current home within the Department for Business, Innovation and Skills, to the Department of Health. Although in doing so the Chancellor may have protected the MRC’s funding in the short term, it may have also been made vulnerable in the future, as its funding may have been used to, for example, relieve pressures in the NHS. Many in the academic community feared too that with the same civil servants and ministers managing the budget for research in the Department of Health for organisations such as the National Institute for Health Research, they may misunderstand the research priorities, outcomes and goals of the MRC and the difference between basic and clinical research.
However, this fear proved unfounded, with the Chancellor making an explicit commitment to maintaining the medical research budget within BIS, which he said was “working well where it was.”
The Chancellor also announced the Government was committed to maintaining the UK’s leading position in world-class research, by ensuring that resource funding for science would be maintained in cash terms at £4.5bn in 2015-16, and so would rise with inflation. He also announced that science capital funding in real terms would increase from £0.6bn in 2012-2013 to £1.1bn in 2015-16, and rising with inflation after this. The Chancellor also allayed the concerns of medical research charities and committed the Government to supporting the Charity Research Support Fund – a source of funding heavily relied on by these groups.
The Spending Round 2013 document also states an expansion of the Small Business Research Initiative, which supports private organisations in conducting research in partnership with Government. Together with this, the Spending Round document also made an additional commitment of £185m for the Technology Strategy Board which supports translational research, and also aspires to set an overall science capital budget which would grow in line with inflation to 2020-21.
Although the improvements in budgets for science and research were meagre despite the Government’s vocal commitment to this specific area, the Chancellor’s speech also announced wide reductions in public spending for other areas, and as such, the small increases and commitments to maintaining cash sums will provide a source of relief for the academic community.
Antonio Dorileo is responsible for providing public affairs and media relations support to a number of clients in the education, green, science, and charitable sectors. His role involves generating press coverage on behalf of clients, producing detailed briefings on legislation and Parliamentary activity and assisting team members in planning and implementing positive media and political strategies.
HOW THE DEPARTMENTS STACK UP