George Osborne announces £3bn extra Whitehall cuts and Royal Mail sell-off

Written by Josh May & Emilio Casalicchio on 4 June 2015 in News

Transport and defence departments to bear the brunt of extra cuts this year

George Osborne has laid out more details of the government’s spending cuts, with a further £3bn coming from Whitehall departments this year and £1.5bn from selling off the remaining stake in Royal Mail.

Unprotected departments are to make average savings of 3% this year, on top of the £13bn cuts already announced in March’s Budget.

The Ministry of Defence and Department for Transport are the biggest contributors to the £3bn cuts, giving £500m and £545m respectively.

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The Department for Business, Innovation and Skills and non-school spending in the Department for Education are being cut by £450m each, with BIS's reductions including cuts to the further and higher education budgets.

Last month Osborne told business leaders that he had ordered departments to find further savings in 2015-16, and the Treasury today confirmed that unprotected departments had “responded to the… call for them to rapidly identify options to reduce spending this year”.

A statement issued by HMT this afternoon said that departments would be expected to deliver underspends through “tightly managing departmental budgets” rather than spending up to the amount they had been allocated.

The Treasury said further money would be found from “selling assets the government doesn’t need to keep”, including land around King’s Cross valued at nearly £350m.

The chancellor made the announcement in the House of Commons this afternoon.

“As with any challenge, the sooner you get on with it, the better,” he said.

The final 30% of Royal Mail shares owned by the Government will also be sold off, Osborne said.

“It is the right thing to do for the Royal Mail, the businesses and families who depend on it – and crucially for the taxpayer.”

Chris Leslie, the shadow chancellor, criticised the government for not making a full statement to the House of Commons, instead including it in the Queen’s Speech debate, and said the move reflected “panic”.

IFS cuts warning

Osborne's announcement came after the independent Institute for Fiscal Studies, in a briefing on next week's Budget held at the Institute for Government, warned that the Conservative manifesto gave a "misleading impression" about the impact of the party’s proposed departmental spending cuts.

David Cameron has characterised the party’s plan as “saving £1 a year in every £100 that government spends”.

But the independent IFS said the cuts “certainly will not feel like is just 1% being taken out of each area of spending, nor will it require merely £13bn from departmental savings”.

The institute’s deputy director Carl Emmerson claimed the Conservative plans would be “anything but easy” and “will actually require deep cuts to some areas of government”.

He said a total cut of £23.8bn would be required across all departments between 2015–16 and 2018–19 in order for the Government to meet its spending plans.

“That’s on top of the £2.2bn of cuts taking place in 2015–16 and the £49.2bn of cuts delivered between 2009–10 and 2014–15.”

If defence were protected at 2% of GDP, unprotected departments would face 37% of cuts between 2010 and 2019, compared with 15% of cuts over three years without the 2% protection, the IFS claimed.

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