Autumn Statement 2016: Hammond loosens Osborne's £3.5bn efficiency drive – but departmental cuts plan remains

Spending Review 2015 plans "will remain in place", says the new chancellor – but departments will be able to reinvest some of their 2019/20 savings

By Matt Foster

23 Nov 2016

Phillip Hammond promised a shift in the relationship between the Treasury and the rest of Whitehall on Wednesday, as he said departments would be able to hold on to some of the money they save in an efficiency drive launched by his predecessor George Osborne.

Whitehall departments agreed tough spending settlements at last year's government-wide Spending Review, with ministries asked to make average cuts of 18% to their day-to-day spending by 2019-20.

In the Autumn Statement on Wednesday, Hammond said those wider plans would remain in place for the course of the parliament.

Autumn Statement 2016: Live coverage as Philip Hammond unveils Treasury plans
Autumn Statement: Land Registry privatisation shelved

"We have demonstrated beyond doubt that controlling public spending is compatible with world-class public services and social improvement," he said.

"But as the OBR’s debt projections demonstrate, we have more work to do to eliminate the deficit.

"So departmental spending plans set out in the Spending Review last autumn will remain in place, and departmental expenditure in 21-22 will grow in line with inflation."

But the chancellor revealed that departments would be given some wiggle room on the £3.5bn of extra cuts pencilled in for 2019/20 by his predecessor George Osborne at the Spring Budget earlier this year.

"Having run two large spending departments in previous roles, I came to this job with some very clear views about the relationship between the Treasury and spending departments," Hammond said.

He added: "I want departments to be incentivised to drive efficiencies. And I want the Treasury to be an enabler for good, effective spending across government.

"To kickstart this new approach, I will allow up to £1bn of the savings found by the efficiency review in 19/20 to be reinvested in priority areas and I have budgeted today accordingly."

The full Autumn Statement document published alongside Hammond's speech also confirmed that the Treasury is "reviewing its approach to spending control, with the aim of improving how it works with departments".

"This will ensure that the framework continues to provide the right incentives for departments to identify efficiencies and deliver high quality public services within budget, that public expenditure provides value for money, and that it can be reprioritised as necessary," it said.

Hammond's concession on the Efficiency Review came against a worsening outlook for the wider UK economy in the wake of the vote to leave the European Union.

With borrowing now forecast to be £122bn higher by 2020/21 than outlined at the March Budget, the new chancellor confirmed that the government had shelved its target of running a surplus by the end of the decade.

Instead, the Treasury set out three new fiscal rules: that borrowing should be below 2% by the end of the current parliament; that public sector net debt as a share of GDP should be falling by the end of the parliament; and that welfare spending would continue to be capped at a rate set by the government and overseen by the independent Office for Budget Responsibility (OBR).

The Autumn Statement also allocated £412m in funding for the departments playing a key role in the Brexit process, with a boost for the Foreign Office, the Department for International Trade and the Department for Exiting the European Union. However, a key Whitehall union has already warned that other departments will need more resources to cope with the impact of the UK's EU departure.

The Treasury also confirmed that plans to privatise the Land Registry had been axed, while Hammond revealed that he was scrapping annual Autumn Statements and Spring Budgets in favour of a one-off Budget every autumn, and a much-more limited spring response to forecasts from the OBR.

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