Magazine article Public Finance

Something's Got to Give

Magazine article Public Finance

Something's Got to Give

Article excerpt

In 1997, Tony BIaIr stated that the first three priorities of his new Labour government would be 'education, education, education'. The focus of the chancellor's recent Budget speech was spending on schools. This suggests that, in this respect at least, there might not be much difference between a Blair government and one led by Gordon Brown.

However, if next year's Comprehensive Spending Review is to increase education spending as fast as in recent years then some government departments will be facing budget cuts and even the NHS - the large winner under previous Spending Reviews - would need to receive a much lower rate of increase in funding.

Alternatively, next year's Budget could announce a more generous than expected ceiling for public spending. However, this would be likely to require further tax raising measures, given that there is little room for manoeuvre against the chancellor's fiscal rules.

The CSR will set out spending plans for government departments in 2008/09,2009/10 and 2010/11 - a period that is expected to cover both Blair standing down as prime minister and the next general election.

The figures contained in the recent Budget suggest that over this three-year period, total public spending will increase only by 1.9% a year in real terms, which is less than the expected growth in the economy.

If so, the chancellor would be more likely to meet his fiscal rules without having to resort to further tax increases. But the allocations to spending departments would be significantly less generous overall than under Spending Reviews to date.

Over the period from April 1999 to March 2008, total public spending is set to grow by an average of 4.1% a year in real terms - which is more than twice the rate of increase planned for the period to be covered by next year's CSR.

The chancellor also revealed in the Budget that over the period covered by the CSR, the Home Office is to have its spending frozen in real terms, while spending by the Department for Work and Pensions, the Treasury, Revenue & Customs and the Cabinet Office is to be cut by 5% in real terms per year.

These figures would allow the remainder of government spending to increase by 2.1%, which is still less than both the expected growth in the national economy and the increases that have occurred in recent years.

The Budget indicated that school spending is one area that is likely to be prioritised. …

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