Jeremy Hunt has insisted that departmental budgets set in last year’s Spending Review will be “protected” but has acknowledged that in-house spending will need to be reined in because soaring inflation has made the settlements worth less.
The chancellor used today’s Autumn Statement to set out plans for £55bn of new savings over the next five years, largely through tax increases and spending restraint – although both the NHS and the Department for Education have received boosts.
The chancellor said ministers planned to “grow public spending”, but would do it “more slowly than in the rest of the economy” to deal with a significant downturn in the nation’s finances, exacerbated by Liz Truss and Kwasi Kwarteng’s disastrous mini-budget in September.
“For the remaining two years of the Spending Review, we’ll protect the increases in departmental budgets we’ve already set out in cash terms. And then grow resource spending at 1% a year in real terms in the three years that follow,” Hunt said.
“Although departments will have to make efficiencies to deal with inflationary pressures in the next two years, this decision means overall spending in public services will continue to rise in real terms for the next five years.”
Chief Treasury secretary John Glen and Cabinet Office minister Jeremy Quin have been tasked with running a new review to drive those “efficiencies”.
HM Treasury’s Blue Book detailing measures set out in the Autumn Statement said the drive would try to identify projects to cut, ways to do government work less labour intensively and that it would also be reappraising the performance of some government bodies.
“To keep spending focused on the government’s priorities and help manage pressures from higher inflation, government departments will continue to identify efficiency savings in day-today budgets,” the document said.
“To support departments to do this, the government is launching an efficiency and savings review. This will include reprioritising spending away from lower-value and low-priority programmes, and reviewing the effectiveness of public bodies."
Glen and Quin “will work with all the cross-cutting government functions and departments to drive up professional standards, accelerate progress on innovation and automation, and further reduce waste and duplication”, it said.
The Blue Book pledged a progress report on the review in the spring.
Hunt gave no indication of the magnitude of efficiencies that departments would need to make to keep within their 2021 settlements in the face of double-digit inflation.
However, back in March, independent think tank the Institute for Fiscal Studies suggested that rising inflation had already devalued the spending plans by around 10% in less than six months. Since then, inflation as measured by the Consumer Prices Index has gone on to exceed projections. According to the Office for National Statistics, it hit 11.1% for the year to October.
Capital spending freeze 'a real-terms cut'
Reacting to Hunt’s Autumn Statement today, IFS director Paul Johnson said proposals to increase public spending by 1% a year from 2025 onwards would still mean cuts for unprotected departments.
He added that freezing capital spending from 2025 was “of course a real terms cut”.
Dave Penman, general secretary of senior civil servants’ union the FDA, said the government could not disguise the reality of sticking to last year’s Spending Review settlements in the face of rocketing costs.
“The chancellor has cut spending across all government departments in real terms until 2025,” he said.
“This will only lead to one thing – further pressure on vital services that the public relies upon.
“Musings about efficiency and the launch of an ill-defined efficiency and savings review will mean little to civil servants working across government, who already place efficiency at the heart of their work.”
Mark Serwotka, general secretary of PCS – the civil service’s biggest union, said the Autumn Statement was a return to austerity.
“This statement is a catastrophe for our members,” he said. “The government is cynically using the soaring inflation and devastating cost of living crisis to punish workers. Be in no doubt, austerity is back.”
Serwotka said the cuts that would be required were neither necessary nor inevitable.
“This rotten government is making a political choice,” he said.