Spending Review: quick summary

In headline terms, the Spending Review looks little different from the public finance forecasts in the summer budget. The Government will achieve a fiscal surplus by the end of this parliament (the first time that this has been achieved since 2001). And total public spending as a percentage of GDP will fall from 40% currently to 36%.
 
But Osborne has managed to achieve this whilst simultaneously being more generous on the spending side.
 
The worst of the proposed tax credit cuts have been reversed (the proposed reduction in the work allowance will not be implemented, nor will the increase in the taper rate). However, this generosity will not be extended to Universal Credit, which will eventually replace tax credits. So although the reversal to tax credit cuts will cost the Chancellor £3.3bn next year, this cost will fall year-on-year as claimants ‘migrate’ from tax credits to UC. In this way, the Chancellor can still achieve his objective to reduce welfare spending by some £12bn by the end of the parliament – its just that this now takes longer to achieve, and he will breach his self-imposed ‘welfare cap’ for the next three years.
 
Cuts to departmental spending are also not as bad as most people expected. The total real terms DEL cut over this parliament is now 3%, compared to a forecast 6% cut forecast in July’s Budget.
 
How has Osborne managed to achieve his overall fiscal targets whilst simultaneously raising spending relative to the summer forecast? First, there are two big revenue raising measures. The first is the ‘Apprenticeship Levy’. This is a tax of 0.5% of an employers paybill (for employers with a payroll cost greater than £3m) and will come into effect in 2017. It is expected to raise £3bn a year by the end of the parliament. The second is a 3% levy on existing rates of Stamp Duty payable for second homes and buy-to-let properties. This is expected to raise £900m by 2020.
But beyond this, the Chancellor has also benefitted from two pieces of good news from the OBR. The first is that the estimates of economic growth have been (slightly) raised, which feeds through to higher tax receipt forecasts (and means that a given level of spending can be expressed as a lower percentage of GDP). The second is that interest rate forecasts have been lowered, which means that debt interest payments swallow-up a lower proportion of total government spending, leaving more for other stuff.
 
What about the implications for Scotland? In funding terms, the Scottish Government will see a 5% real terms cut in its allocation for day-to-day resource spending, from £25.9 in 2015/16 to £24.6bn in 2020/21. There has been a slight tweak in the way that Scotland’s ‘Barnett consequentials’ are calculated, meaning that Scotland is no longer protected from cuts to Local Government spending in England to the same extent that it used to be.
 
Over the same period, the Scottish Government’s capital allocation will rise by 5% in real terms, from £3 to £3.2bn.
 
Buried deeply in the OBR forecasts is some slightly bad news for John Swinney. The OBR has reduced its forecast of revenue from the Land and Buildings Transactions Tax in Scotland, (equivalent to Stamp Duty, which is now devolved to Scotland). For 2015/16, the forecast for LBTT has been reduced from £540m to £397m. This is perhaps not huge in respect of the Scottish Government’s total budget, but it represents a fairly substantial fall in percentage terms.
 
Of course, given that LBTT is now devolved to Scotland, the Chancellor’s proposal to raise Stamp Duty on second homes and buy-to-let properties will not apply here. It remains to be seen whether (and how quickly) the Scottish Government follows the UK policy change.
 
Overall, the departmental spending plans contained within the Spending Review are higher than were forecast in the Summer Budget (and substantially higher than were implied by the Conservative Manifesto), funded partly through better economic news (higher growth and lower debt interest spending), and partly through some tax increases. Welfare cuts have been delayed rather than eliminated. The big question is whether the economic forecasts that underpin these plans will turn out to be overly optimistic.

Comments policy

All comments posted on the site via Disqus are automatically published. Additionally comments are sent to moderators for checking and removal if necessary. We encourage open debate and real time commenting on the website. The Centre on Constitutional Change cannot be held responsible for any content posted by users. Any complaints about comments on the site should be sent to info@centreonconstitutionalchange.ac.uk

David Eiser's picture
post by David Eiser
Fraser of Allander Institute
26th November 2015

Latest blogs

  • 22nd January 2019

    The UK is increasingly polarised by Brexit identities and they seem to have become stronger than party identities, a new academic report finds. Only one in 16 people did not have a Brexit identity, while more than one in five said they had no party identity. Sir John Curtice’s latest analysis of public opinion on a further referendum finds there has been no decisive shift in favour of another referendum. The report, Brexit and public opinion 2019, by The UK in a Changing Europe, provides an authoritative, comprehensive and up-to-date guide to public opinion on each of the key issues around Brexit. CCC Fellow, Dr Coree Brown Swan contributed a chapter on "the SNP, Brexit and the politics of independence"

  • 22nd January 2019

    In the papers accompanying the draft Environment (Principles and Governance) Bill published at the end of 2018, the UK Government says that it is “exploring opportunities to co-design the final proposals with the devolved administrations.” There are clear benefits in having strong co-operation and collaboration across the UK in the oversight of our environmental law and performance. Yet the challenge of finding a way forward in terms of working together is substantial since each part of the UK is in a different position at present. Given where things stand today, it may be better to accept that a good resolution is not possible immediately and to revisit the issue at a later stage - so long as there is a strong commitment to return and not allow interim arrangements to become fixed. Colin Reid, Professor of Environmental Law at the University of Dundee examines the issues.

  • 17th January 2019

    Richard Parry assesses a memorable day in UK parliamentary history as the Commons splits 432-202 on 15 January 2019 against the Government's recommended Brexit route. It was the most dramatic night at Westminster since the Labour government’s defeat on a confidence motion in 1979.

  • 17th January 2019

    What is the Irish government’s Brexit wish-list? The suggestion that Irish unity, as opposed to safeguarding political and economic stability, is the foremost concern of the Irish government is to misunderstand and misrepresent the motivations of this key Brexit stakeholder, writes Mary C. Murphy (University College Cork).

  • 17th January 2019

    Brexit is in trouble but not because of the Irish backstop, argues the CCC's Michael Keating.

Read More Posts