Public bodies exempt from any reductions are the NHS, schools, security and intelligence agencies as well as HM Revenue and Customs, which is being spared to “focus on tackling tax avoidance and evasion”.
The biggest chunk of money is to be removed from the Ministry of Defence’s coffers: it’s which is set to lose £277m in the next financial year and £272m in 2015-16. Both reductions are to be made from figures set out in this spring’s Spending Review.
The second biggest reduction in total numbers is taking place in the Department for Education, which will lose £167m in 2014-15 and £156m the following year of its non-school-related spending.
The Department for Business, Innovation and Skills will see its budget cut by £157m and £148m thereafter. The Department for International Development is the only one, alongside the NHS and the local government arm of the Department for Communities and Local Government, which will not see its spending further reduced over the next two years.
Speaking in the House of Commons earlier today, Osborne, who already laid out efficiency savings in Whitehall worth £5bn for 2014-15 in the Spending Review, said that “tight discipline means that most departments are now living well within their set budgets”.
Osborne announced that economic growth is forecast to continue to rise, but added that “economic growth alone cannot be relied upon to eliminate the deficit, and difficult decisions still need to be made”.
He said that departments are expected to underspend by £7bn this year, but added: “Ultimately, the test of fiscal credibility is whether you are prepared actually to take the difficult decisions to keep spending under control.”
The document setting out Osborne’s proposals in detail states that efficiency savings achieved since 2010 will amount to £20bn by 2014-15, as well as a reduction of the size of the civil service by 23% by 2015.
However, it also states that there is “more to do” and that the Treasury will consider how “continuing reform of public sector pay policy” can help to “get the best value for money from the [public sector] pay bill”, which “accounts for around half of departmental resource budgets”.
Osborne announced that a “package of measures to tackle tax avoidance, tax evasion, fraud and error” will raise more than £9bn over the next five years.
Discipline with the public finances, he said, means acting to “fix the roof when the sun is shining” and “capping welfare to keep it under control”, adding that the chancellor of the day will set a welfare cap at the beginning of each Parliament for the coming years and ask the House of Commons for its support.
“If the cap is breached,” he said, “they will have to explain why and hold a vote in this House”.
Other announcements have included a plan for government to trial a "pay bill control" in a small number of departments, designed to replace the one per cent cap on pay awards.
An "open approach" will also be launched to identify areas where private sector participation in government services could be considered.