Spending Review: Introduction

The Comprehensive Spending Review (CSR) announcement was effectively the second stage of the June Emergency Budget. Budgets traditionally attract more attention, but in this instance the CSR is the more significant element. The context is that total Government expenditure in the current year is estimated to be £697 billion and Government receipts will be only £548 billion, leaving an expected shortfall of £149 billion.

The goal the Chancellor set in the Budget was to bring public sector net borrowing down from 11% of gross domestic product in 2009/10 to near break-even by 2015/16. Just over three-quarters of that reduction – £99 billion in 2015/16 – has been earmarked to come from spending cuts. The balance is to be derived from higher taxation, such as next year’s VAT and NIC increases.

The Chancellor announced cumulative cuts to Government departments of just under 20% a year by 2015/16, with a total reduction in the public sector headcount expected to be 490,000 by then. Some areas of expenditure were protected in varying degrees, notably: schools, science, overseas aid, the National Health Service and defence. The main target of savings is the welfare budget, where the annual savings are expected to be about £7 billion (including tax credit changes) by 2014/15, in addition to the £11 billion a year by 2014/15 announced in the June Budget.