Budget 2016: Departments face £3.5bn of further cuts in 2019/20 – but protections remain
"Departmental efficiency review" will "help deliver a further £3.5 billion of savings from public spending" in 2019-20, says George Osborne
Government departments will be asked to find a further £3.5bn of spending cuts by the end of the decade, chancellor George Osborne has confirmed.
Unveiling his 2016 Budget on Wednesday, the chancellor said he had asked Cabinet Office minister Matt Hancock and Treasury minister Greg Hands to embark on a “further drive for efficiency and value for money”, seeking extra savings on top of those outlined at last year's government-wide Spending Review.
The Spending Review saw departments asked to make average cuts of 18% to their day-to-day spending by 2019-20. However, departments including Health, Defence and the Foreign Office were earmarked for protection, and the Treasury has made clear that it is not looking to unpick those agreements.
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The full Budget document published alongside Osborne's speech says the latest "departmental efficiency review" – set to report by 2018 – will "help deliver a further £3.5 billion of savings from public spending" in 2019-20, while "maintaining the protections set out at the Spending Review and Autumn Statement".
According to the Office for Budget Responsibility's analysis of the Budget, the Treasury has cut its overall limit on departmental current spending by £2.3bn, although the watchdog estimates that this will mean an actual cut of £1.8bn "as departments underspend their budgets by less".
The OBR adds: "The government says that this £2.3 billion gross cut – together with £1.9 billion of new spending commitments in areas such as lengthening the school day, full ‘academisation’ of state schools and improving flood defences – will be funded from a £0.7 billion cut in overseas aid and £3.5 billion of as-yet unidentified cuts to be generated by an ‘efficiency review’ that will report in 2018."
The Public and Commercial Services (PCS) union, the largest of the civil service unions, has already attacked Osborne's plans for more departmental reductions.
General secretary Mark Serwotka said: "Further cuts to civil service departments would be devastating, as tens of thousands of jobs are already under threat and hundreds of offices are earmarked for closure, hitting vital services from tax collection to our justice system."
According to the OBR, departments will also see "an additional £2 billion a year squeeze" in 2018 because of plans to increase the amount they pay towards public service pension schemes.
Osborne's announcement came against the backdrop of downgraded growth forecasts from the OBR. Its new forecasts put growth for 2016 at 2%, down from 2.4% at November's autumn statement.
For 2017, growth is now estimated to be 2.2%, down from 2.5%, while in 2018, 2019, and 2020 the OBR now expects growth of 2.1%, down from 2.4%, 2.3% and 2.3% respectively in those years.
The OBR also confirmed that Osborne is still on track to meet his target of achieving a budget surplus by 2019/20, with the watchdog estimating a £10.4bn surplus by the end of the decade, £300m higher than estimated at the Autumn Statement.
But Osborne is missing the second of his fiscal targets, which aimed to see net debt as a share of national income falling at a fixed date by 2015−16.
However, the chancellor said that while debt as a percentage of GDP was "above target and set to be higher in 2015-16 than the year before", the "actual level of our national debt in cash is £9 billion lower" than at the autumn forecasts.
"In the future, debt falls to 82.6% next year, then 81.3% in 2017-18, then 79.9% the year after. In 2019-20, it falls again to 77.2%, then down again the year after to 74.7%," he added.
Tax and policy
Osborne's budget also saw a number of key policy announcements, with the chancellor vowing to introduce a new £520m levy on sugary drinks in two years' time; provide government support to savers aged under 50 with a new "Lifetime ISA"; and confirming that the Department for Education is to press on with its plans for all local authority-run schools to begin the process of becoming acadamies by 2019-20.
On tax, the chancellor opted to freeze fuel duty for the sixth year in a row, and said there would be a 0.5% increase in insurance premium tax, worth £700m, earmarked at providing further funding for flood defences.
The personal tax allowance will rise to £11,500 from April next year, Osborne announced, while the the higher rate threshold will also rise to £45,000.
Meanwhile, Osborne said public sector organisations would be given "a new duty to ensure that those working for them pay the correct tax rather than giving a tax advantage to those who choose to contract their work through personal service companies", and said the Treasury would subject termination payments over £30,000 to employer national insurance from 2018.
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