Budget 2016: Osborne left with few "easy choices" on departmental cuts, says Lord Kerslake

"The obvious efficiency savings have come through in the early period," says former head of the civil service – as chancellor prepares to outline £4bn of further spending cuts

By matt.foster

15 Mar 2016

George Osborne will not be left with any "easy choices" when he announces further public spending cuts in Wednesday's Budget, according to former civil service head Lord Kerslake.

The chancellor confirmed at the weekend that he will outline £4bn of fresh reductions to public spending over the parliament, after growth was revised down from earlier Office for Budget Responsibility estimates and against the backdrop of a slowing world economy.

The latest cuts will come on top of a government-wide Spending Review last November, which saw departments asked to deliver average cuts of 18% to their day-to-day spending.

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Lord Kerslake, who served as head of the civil service from 2011 to 2014, said Osborne was left facing "quite difficult" choices because of his commitment not to raise taxes.

"The obvious efficiency savings have come through in the early period," Lord Kerslake told the BBC. "And his choices around welfare reform now, given what happened on tax credits, I think are quite difficult as well. So it's hard to see where the easy choices are now."

Kerslake said any further savings would have to come from "very substantial changes in the way things are delivered - or, indeed, the offer made", and pointed out that Osborne had "still got some way to go" to meet his self-imposed target of running a £10.1bn budget surplus by 2019-20.

"The important thing to say is that the second half is much harder because the sense of crisis that drove the savings in the coalition government has ebbed, the wider economy is growing so people can't see a comparable position there and people just get exhausted by the process," Kerslake said. "The easy savings have been done. So where do you go?"

OBR projections at November's Autumn Statement saw Osborne receive a £27bn windfall over the parliament, thanks to higher tax receipts from VAT, income and corporation tax and lower-than-expected debt interest payments.

But Osborne used the same statement to delay cuts to tax credits, protect police funding and ease some of the planned squeeze on departments including the Foreign Office.

The Institute for Fiscal Studies has warned that if the Bank of England’s own downgraded earnings growth projections are mirrored by the OBR when it presents its latest forecast on Wednesday, around £5bn will be wiped off the planned 2020 surplus, putting pressure on departments.

Speaking at the weekend, Osborne confirmed that he would outline additional public spending cuts cuts worth 0.5% of total government spending in Wednesday’s Budget — a figure he insisted was “not a huge amount in the scheme of things”.

"My Budget will set out the clear direction we must hold to through the current uncertainty in the world," the chancellor said.

"It won’t be easy, but I am determined to make sure that despite the gloomier global picture we keep taking the right decisions to keep Britain prosperous and secure."

Oliver Ilott of the Institute for Government think tank said he believed it was "most likely" that Osborne would look to "salami-slice" unprotected departmental budgets, anticipating a "roughly uniform" cut for each unprotected department.

Writing on the IfG blog, he added: "The chancellor may be able to retrieve some planned cuts that were shelved in November following the OBR’s revision of revenue forecasts.

"But it is telling that the 2015 Spending Review does not even come into effect until April and already the Chancellor is being forced to alter his plans. This raises questions about the government’s long-term fiscal planning. With increasing demand for many services and signs that existing cuts are beginning to bite, there is a risk that austerity in the current parliament becomes a case of annual haircuts."

Ahead of Osborne's statement, CSW's expert colleagues on the Dods Monitoring team have compiled a free speculation document outlining potential announcements and a roundup of some key stakeholder Budget submissions. Click here to receive your copy

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