Magazine article Public Finance

The Magic Numbers

Magazine article Public Finance

The Magic Numbers

Article excerpt

Next year's Comprehensive Spending Review could be the first big policy announcement by Gordon Brown's successor as chancellor. The tentative plans for overall spending set out in last week's Pre-Budget Report suggest that this will involve a cut in the share of the economy spent by the government, and a significant slowdown in the rate of growth in priority areas such as education and health.

The review will set out plans for government departments for the three years from April 2008 to March 2011. While the overall spending envelope has not yet been confirmed - that announcement is expected in the spring Budget - the figures presented in the PBR give an indication of the chancellor's plans. These show total public sector spending rising by 1.9% a year after economy-wide inflation. This would be significantly slower than the average growth of 3.3% a year seen over the ten years from 1997/98 to 2006/07.

The size of the state as a share of national income was 40.8% of national income in 1996/97 when Labour came to power. It is forecast to peak at 42.5% in 2007/08 before falling to 41.9% in 2010/11. This planned decline would also be consistent with Conservative leader David Cameron's pledge to share 'the fruits of economic growth between lower taxes and strengthened public services'.

So what might this spending envelope - if kept to - mean for individual spending departments? Some allocations have already been set. The last Budget announced that the Home Office's budget would be frozen, and that four other smaller departments would see their budgets shrink by 5% a year in real terms.

This includes the administrative budget of the Department for Work and Pensions, which has targets for increasing the employment rate of lone parents and reducing the numbers receiving disability benefits, and also has to reform the failing Child Support Agency.

The PBR announced that the Department for Constitutional Affairs would receive a cut of 3.5% a year, and that the budgets of five further small departments would shrink by 5% a year.

Other departments will have to wait until next year. However, by looking at the government's commitments and the choices that it has made to date, it is possible to calculate a plausible allocation. There is a manifesto commitment to increase spending on overseas aid to 0.7% of national income by 2013, which would require real increases averaging in excess of 10% a year from April 2008. …

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