Lessons from the past: how different will this spending review really be?
The mere mention of an imminent Comprehensive Spending Review or CSR has, for the past 10 years, been enough to send shivers down the spine of most Whitehall officials. In times of austerity, a review of the entirety of Government spending can mean only one thing - cuts. And despite what the Government has said about moving away from austerity, the impact of COVID means this Autumn’s CSR is unlikely to be so very different from those we have seen before.
By Sue Beeby
During the six years I spent in Government I experienced two CSRs – one as an adviser in a department desperately searching for spending cuts, and one on the other side of the table, as an adviser in the Treasury, turning the screws. The two experiences were very different but taught me a lot about these events – the process, the politics and, yes, the personalities.
In 2010 George Osborne was clear about his agenda – to put the national finances on a sustainable path, the Government needed to find cuts across the board, but cuts that illustrated the ‘fairness’ at the heart of the coalition Government. Part of this fairness was ensuring that all non-protected Government departments, regardless of the size of their budget, were expected to find similar levels of spending reduction. For me, a rather green special adviser in the Department of Culture, Media, Sport and the Olympics – one of the smallest departments in Whitehall – that meant helping to find 24% cuts across our revenue spend and 32% cuts in our capital expenditure across our tiny (in Whitehall terms) annual budget of £2bn.
At DCMS that meant reams of excel spreadsheets and a black marker pen. The start of the process is easy, particularly for a new Government. Cross off all the expenditure you don’t agree with or didn’t sign up to (for us Andy Burnham’s free swimming initiative was one of the first things to go). These types of savings – ‘the low hanging fruit’ – will get you a certain proportion of your reductions but almost certainly nowhere near the eye-watering cuts we were asked to model.
The next part of the process was chipping away at the spending you wanted to keep but needed to reduce. Our approach in 2010 was to have no favourites – the arts, sport, and museums all faced similar cuts which we tried to mitigate by increasing lottery funding in these areas. The biggest cuts were saved for ‘admin’ as swingeing 40 per cent cuts were made to the department’s administration budgets. The ministerial cars – gone, staff – reduced, and the tenancy on our expensive standalone office – given up so the department could ironically rent space in HM Treasury instead.
The final part of the process involved the bleeding stumps. The cuts too far. Every department hits the stage where all reasonable savings have been made and the only way to illustrate this to the Treasury is to throw ‘body parts’ on the table. Scrap free entry to museums and galleries, cut spending on the Olympics by half, stop funding grassroots sport. Every department has them, the things that are too toxic to do and all of them will at some point be offered up to the Treasury as the only option when cuts go too deep. None of them ever really happen.
This is the process inside Government departments. A line by line forensic approach, that calculates risk and sets the direction of travel for your department for the next four years. At the Treasury it’s rather different. Overseeing the spending of £750bn requires a macro approach that takes a bird’s eye view across the entirety of Government.
It begins with the Chancellor and the PM, who set the strategy with their political approach, outline the parameters with their policy decisions, and are accountable for the overall decisions that are taken. The role of the Treasury and its advisers is to check that the rest of the Government plays ball. Ensuring commitments are fulfilled while departments make the necessary cuts in other parts of their budgets – and don’t include any bloody stumps.
Walking into the spending review in 2015 off the back on the General Election meant we already had some of the parameters set out by the spending and, unusually, cutting commitments we had made in the manifesto. The triple lock on pensions, 0.7% of GDP on foreign aid, an extra £8bn a year on the NHS and £7bn of welfare cuts. All of them had to be delivered, while also finding the necessary cuts to continue reducing the budget deficit.
This year will be the same. We know much about some of the bigger spending commitments the Government will make because of the promises made in the General Election last year. We know, for example, that there will be more money for the NHS, for schools and for the police, but how this will fit within overall Government spending, the impact of COVID and what is left of the fiscal rules, remains to be seen and will be highly influenced by both the politics and the personality dynamics in Government.
The politics of spending reviews are crucial because they shape the look and feel of the CSR. In 2010 and 2015 the CSRs were very clearly labelled as austerity events, and as such the cuts, or the Government’s prudence, was there to be celebrated. The message was very clear – look at what we can still do, and who we can still support while we make the cuts necessary to secure the economic future of our country.
In 2020 this will feel quite different. The Prime Minister has promised an end to austerity, but if there are to be spending increases for the likes of schools, hospitals and the police the money will have to come from somewhere and that means either cuts from other public spending or tax rises.
Most recently the commitment to increasing the pay of public sector workers, which was welcomed across the board, ominously came from ‘existing budgets’. This means funding these significant commitments – the public sector pay bill is over £180bn a year, so increasing pay by just a couple of percentage points costs a huge amount of money – tells you that cuts will certainly have to be made elsewhere.
This is not so different from the spending reviews of 2010 and 2015 but presentationally will need to feel a million miles away. The Government’s narrative will be to play up the spending and investment and play down the cuts but to do this effectively they will have to get the politics absolutely right.
In 2015 we had learned lessons from some of the mistakes made in 2010. I remember early on George Osborne taking the decision to leave the arts, sports and museums relatively untouched as it had become clear post 2010 that the savings gained from their tiny budgets were not worth the noise made by these high-profile groups.
What we hadn’t experienced in 2015, something that came back to bite us, was conducting a spending review with a tiny majority. While the £7bn of welfare cuts we made had been set out in the Tory manifesto, the changes to Tax Credits that played an important part in achieving this ambition were so controversial that they almost destabilised the entire 2015 spending review when a handful of Tory MPs opposed the changes.
While the coalition had complicated the decision-making process in Government in 2010, once a decision was agreed the Government had a comfortable majority to get things through the House. In 2015, with a majority of only 12, while making the decisions in a purely Conservative government was easy, it was getting them through the Commons that was challenge.
This time around with a majority of 80, Boris Johnson’s Government is insulated from the Parliamentary struggles but any political push back from his own party about particular cuts is likely to undermine his argument that his Government has moved away from austerity.
In addition, the Government now faces a much more effective opposition. Jeremy Corbyn and Ed Miliband struggled to undermine the central message of the ‘austerity’ 2010 and 2015 CSRs. In fact, because the public widely supported the need for cuts, setting themselves against Osborne’s long-term economic plan actually played to the Tories’ advantage. But this time round, if the Government try to focus exclusively on investment while Labour scream “cuts” the public will have to make their own minds up about who is telling the truth. A narrative that convinces the public of the need for investment and the need for prudence, may be more difficult but is likely to be more successful in the longer term.
It might seem odd to have a section on personalities when writing about the spending review but the people involved in the process have a huge influence on its outcome. While Cameron and Osborne were both wedded to the austerity agenda – on which their electoral mandate was built – Boris Johnson is clearly desperate to spend some money and disassociate himself from the cuts that the public has become weary of.
But despite his Coronavirus spending spree, the new Chancellor Rishi Sunak is likely to be more cautious than his boss in No10. There have already been mentions of “balancing the books” and getting “public spending back on an even footing” conspicuous in his recent rhetoric and so Sunak and his Treasury team are likely to start from a different point of view. Although he has huge popularity now, Sunak will be well aware that no Conservative Chancellor can have any credibility with his party unless he is able to prove he has a plan that goes beyond more spending, more borrowing and more debt.
It will be interesting to watch this dynamic play out in the coming months and see whether the Chancellor/PM relationship is strong enough to deliver the compromises needed here or whether it will come down to a battle of wills where one side has to assert themselves over the other. The PM is clearly boss, but we shouldn’t underestimate the power of a popular Chancellor, particularly one who has his own longer-term plans of how he would like to be perceived by both the public and his party.
For now, the PM and the Government will continue to push the narrative that this time it will be different, but for weary civil servants and anxious interest groups, I’m sure it all feels too familiar.