SECOND SPENDING REVIEW

The Chancellor, George Osborne MP, will unveil his second spending review tomorrow when he will set out spending plans for 2015-16.

Mr Osborne’s problem is that this is the review he never wanted to deliver. The original plan was that the deficit would be under control in time for the election with no more cuts needed. Weak growth and lower tax receipts have blown that plan out of the water.

The result is that Mr Osborne will be announcing more deep cuts to public services. That is a given. And to put the scale of those cuts into perspective they will be, if anything, a little deeper than the average cuts experienced each year during this parliament.

For a number of key areas of public spending, including the Home Office, Ministry of Justice and the Department for the Environment, this will mean cuts of more than 30 per cent since 2010.

By any standards those are large budgetary chunks to be dispensing with. The question that many will be asking is why the cuts needed are so big? The scale of these cuts cannot be explained by deficit cutting alone. For the remarkable fact is that total government spending is not falling at all.

Some bits of spending are continuing to rise, while others are not falling – due to debt interest payments rising as debt levels continue their upward trend. Public service pensions are also rising, with state pensions, the NHS and schools ‘ring-fenced’.

In effect, this means that all of the strain is being taken by a limited range of areas. That is why cuts in defence, police, justice, local government, and welfare have been so deep already. And it is for this reason that further deep cuts will be a priority for a Chancellor anxious to balance the books.

We have already been told that this pattern will continue. Health and pensions will again be protected. The longer these two budgets are left untouched the greater the pain that others will feel.

Unless the Government can deliver some truly surprising plans for health, pensions or social security, most other government departments can expect cuts averaging around 8 per cent in 2015-16 – a big cut in any year but all the more so in being layered on top of what has already happened.

There are some in Whitehall, though, feeling rather emboldened by their success so far. Not only have all of the planned cuts actually happened, but in many areas there has been over delivery.

Government budgets were significantly under-spent last year even in the face of extremely tight plans. And so far at least the budget cuts have not provoked visible crises or the sort of public demonstrations and backlashes seen in some other countries.

Equally, it is not surprising that gaining agreement with all Cabinet ministers for a further tightening of the screw in their departments has not been easy. We have been told that all departments have settled, and know that the small ones, on average, have settled for the required 8 per cent cut.

But we are yet to get the details of some big and very difficult departments – education, local government and business among them. Decisions here will make big differences.

Within education it is only schools that are protected. Other services for children and young people could lose out.

The business department – which pays for skills, training, universities and research – has made the case that its spending is uniquely important for growth.

Local government spending has been squeezed hard already and ministers have expressed concern about the effects of a further squeeze on vital social care services.

But even after all that, tomorrow’s spending review will only raise the curtain on at least another two years of tough choices. For much more extensive cuts will be needed if the deficit is to be dealt with in the planned time horizon.

Unless, of course, the next government chooses to raise taxes, or gets fortuitous with an unexpectedly-strong economic upturn.