Written evidence submitted by the CBI
CBI ASSESSMENT OF
THE SPENDING
REVIEW
In this Spending Review, the Chancellor retained
the strategic direction for the public finances set out in the
June Budget. The Chancellor will continue to meet his fiscal mandate
with a year to spare, with a little over three quarters of the
tightening delivered through spending cuts. In line with the CBI's
Spending Review recommendations, the government has taken steps
to preserve those areas of spending which are most supportive
to economic growth.
We particularly welcome the decision to return
£2bn a year to the capital spending budget, and the focus
on areas that support growth. Transport investment will exceed
£30 Billion over the next four years, while the science budget
has also received some protection. The government has also indicated
its commitment to public sector reform, while also opening markets
to further competition and starting to address the sustainability
of public sector pensions. As expected, additional welfare savings
were announced which were used to ease pressures on department
budgets. However, the decision not to recycle revenues back to
companies in the CRC (Carbon Reduction Commitment) increases the
financial costs to business and reduces the incentives for good
behaviour.
A. HEADLINE SPENDING
NUMBERS
The Spending Review retained the overall policy
tightening set out in the June Budget. The government's policies
continue to achieve structural budget balance and debt falling
by 2014-15.
The June Budget set the overall spending envelope
for the Spending Review period 2011-12 to 2014-15. During the
Spending Review process, the government chose to increase the
budget allocation for capital spending, pushing up total spending
by a commensurate amount. As a result, total spending is around
£2 Billion higher by 2014-15 compared with the Budget, bringing
down the total value of spending cuts to £81 billion from
£83 Billion.
As expected, further welfare savings were announced
on top of those set out during the Conservative party conference.
These savings total £16 billion over the Spending Review
period, on top of the £26 billion announced in the Budget.
Changes to public sector pensions and the Carbon Reduction Commitment
also save £7 billion. The announcement of additional welfare
savings, on top of those announced in June, has enabled some pressure
to be taken off department current budgets. As a result, the cuts
to departments are slightly less severe than suggested in June,
with a 7.6% real cut to department current budgets compared with
10.3%.
Table 1: Public sector spending[5]
| Spending Review 2010
| | | |
| | |
| Total managed expenditure | 697
| 702 | 713 | 724
| 740 | -3.3% |
| Gross investment | 60 | 51
| 49 | 46 | 47 |
-27.8% |
| Current expenditure | 637 |
651 | 665 | 679 |
693 | -1.0% |
| Current DEL1 | 343 | 343
| 344 | 349 | 348
| -7.6% |
| Benefits and tax credits | 193
| 199 | 201 | 201
| 207 | -2.7% |
| Other AME2 | 101 | 109
| 118 | 128 | 138
| 23.8% |
| June Budget 2010 | |
| | |
| |
| Total managed expenditure | 697
| 700 | 711 | 722
| 738 | -3.6% |
| Gross investment | 60 | 49
| 47 | 43 | 45 |
-31.3% |
| Current expenditure | 637 |
651 | 665 | 679 |
693 | -1.0% |
| Current DEL1 | 343 | 343
| 341 | 341 | 338
| -10.3% |
| Benefits and tax credits | 193
| 199 | 204 | 207
| 214 | 0.7% |
| Other AME2 | 101 | 109
| 120 | 131 | 141
| 27.0% |
| Change from June Budget |
| | | |
| |
| Total managed expenditure | 0
| 2.0 | 2.0 | 2.2
| 2.3 | |
| Gross investment | 0 | 2.0
| 2.0 | 2.3 | 2.3
| |
| Current expenditure | 0 | 0
| 0 | 0 | 0 |
|
| Current DEL1 | 0 | -0.4
| 3 | 7.7 | 10.3
| |
| Benefits and tax credits | 0 |
-0.3 | -2.6 | -6.0
| -7.0 | |
| Other AME2 | 0 | -0.3
| -1.3 | -2.8 | -3.5
| |
| of which: | |
| | | |
|
| Public sector pensions | 0 |
-0.7 | -0.7 | -1.0
| -1.0 | |
| Carbon Reduction | |
| | | |
|
| Commitment | 0
| 0 | -0.2 | -1.3
| -1.8 |
1 Current DEL = Current/resource departmental budgets
2 Other AME includes debt interest payments, EU contributions,
public sector pensions, Carbon Reduction Commitment.
B. DEPARTMENT BUDGETS
The government has now published the breakdown of departmental
spending over the period of the Spending Review. The NHS, International
Development, Energy and Climate Change, Work and Pensions and
Cabinet Office departments all show positive real growth in their
budgets and the Defence budget is approximately frozen in cash
terms. Remaining departments see their budgets cuts by 19% in
cash terms (26% in projected real terms).
Table 2: Total DEL (Current DEL ex depreciation + Capital
DEL )
| Education | 58.4 | 56.1
| 56.3 | 56.2 | 57.2
| -11% |
| NHS (Health) | 103.8 | 105.9
| 108.4 | 111.4 | 114.4
| 0% |
| Transport | 12.8 | 13
| 13.1 | 12.5 | 12
| -15% |
| CLG Communities | 9 | 5.3
| 4 | 3.4 | 3.2
| -68% |
| CLG Local Government | 28.5 |
26.1 | 24.4 | 24.2
| 22.9 | -27% |
| Business, Innovation and Skills | 18.6
| 17.6 | 16.7 | 15.5
| 14.6 | -29% |
| Home Office | 10.1 | 9.4
| 9 | 8.4 | 8.3
| -25% |
| Justice | 8.9 | 8.6
| 8 | 7.6 | 7.3
| -25% |
| Law Officers' Departments | 0.7
| 0.7 | 0.6 | 0.6
| 0.6 | -22% |
| Defence | 32.9 | 33.8
| 34.4 | 34.1 | 33.5
| -7% |
| Foreign and Commonwealth Office | 1.6
| 1.6 | 1.6 | 1.5
| 1.3 | -26% |
| International Development | 7.8
| 8.1 | 8.8 | 11.3
| 11.5 | 34% |
| Energy and Climate Change | 2.9
| 3 | 3.4 | 3.5
| 3.7 | 16% |
| Environment, Food and Rural Affairs | 2.9
| 2.6 | 2.5 | 2.3
| 2.2 | -31% |
| Culture, Media and Sport | 1.5
| 1.6 | 1.5 | 1.3
| 1.3 | -21% |
| Olympics | 1 | 1.1
| 0.2 | 0 | -0.1
| -109% |
| Work and Pensions | 7 | 7.8
| 7.7 | 7.8 | 7.8
| 1% |
| Scotland | 28.2 | 27.3
| 27.6 | 27.5 | 27.7
| -11% |
| Wales | 15 | 14.5
| 14.5 | 14.5 | 14.6
| -11% |
| Northern Ireland | 10.5 | 10.3
| 10.3 | 10.3 | 10.3
| -11% |
| HM Revenue and Customs | 3.7 |
3.8 | 3.6 | 3.5 |
3.4 | -16% |
| HM Treasury | 0.2 | 0.2
| 0.2 | 0.2 | 0.2
| -9% |
| Cabinet Office | 0.4 | 0.5
| 0.4 | 0.3 | 0.5
| 14% |
| Single Intelligence Account | 2
| 2.1 | 2.1 | 2.1
| 2.1 | -4% |
| Small and Independent Bodies | 1.9
| 1.8 | 1.6 | 1.6
| 1.5 | -28% |
| Reserve | 4.1 | 3.3
| 3.4 | 3.5 | 3.6
| -20% |
| Special Reserve | 4.1 | 4
| 3.8 | 3.8 | 3.5
| -22% |
| Green Investment Bank | - |
- | - | 1 | -
| |
| Total DEL | 378.2 | 370.1
| 368.8 | 370.1 | 369.1
| -11% |
| Change from June Budget | -1.8
| -0.1 | +2.1 |
+6.3 | +7.1 |
|
Capital investment
The government has increased the capital investment budget
relative to June having considered contractual commitments and
those projects with greatest economic value. Total capital investment
is now £8.6 billion higher over the Spending Review period
compared with the June Budget, cancelling out additional capital
spending cuts which were included in the June Budget. However,
over the Spending Review period, public sector investment shrinks
by 21% in cash terms.
Prior to the Spending Review, public sector net capital investment
was set to fall to 1.1% of GDP by 2014-15. It is unclear what
effect the increase in the gross capital investment budget will
have on the net capital investment numbers as updated estimates
of depreciation have not yet been published. The CBI continues
to call for public sector net investment to return to 2.25% of
GDP as soon as possible.
International Development and Energy and Climate Change departments
both see positive real growth in their capital budgets. Investment
falls by around a third across remaining departments.
Table 3: Public sector gross investment by department
Cumulative real growth
| 2010-11 | 2011-12
| 2012-13 | 2013-14
| 2014-15 | Cumulative real growth
|
| Education | 7.6 | 4.9
| 4.2 | 3.3 | 3.4
| -59.3% |
| NHS (Health) | 5.1 | 4.4
| 4.4 | 4.4 | 4.6
| -17.9% |
| Transport | 7.9 | 8.0
| 8.3 | 7.7 | 7.8
| -10.1% |
| CLG Communities | 7.4 | 3.9
| 3.0 | 2.5 | 2.6
| -68.0% |
| Business, Innovation and Skills | 2.5
| 1.8 | 1.7 | 1.4
| 1.6 | -41.7% |
| Home Office | 0.8 | 0.5
| 0.5 | 0.4 | 0.5
| -43.1% |
| Justice | 0.6 | 0.4
| 0.3 | 0.3 | 0.3
| -54.5% |
| Defence | 8.7 | 8.9
| 9.1 | 9.2 | 8.7
| -9.0% |
| Foreign and Commonwealth Office | 0.2
| 0.1 | 0.1 | 0.1
| 0.1 | -54.5% |
| International Development | 1.6
| 1.4 | 1.6 | 1.9
| 2.0 | 13.8% |
| Energy and Climate Change | 1.6
| 1.4 | 1.9 | 2.1
| 2.6 | 47.9% |
| Environment, Food and Rural Affairs | 0.6
| 0.4 | 0.4 | 0.4
| 0.4 | -39.3% |
| Culture, Media and Sport | 2.2
| 2.0 | 1.2 | 0.8
| 0.8 | -66.9% |
| Work and Pensions | 0.4 | 0.3
| 0.4 | 0.4 | 0.3
| -31.7% |
| Scotland | 3.4 | 2.5
| 2.5 | 2.2 | 2.3
| -38.4% |
| Wales | 1.7 | 1.3
| 1.2 | 1.1 | 1.1
| -41.1% |
| Northern Ireland | 1.5 | 1.2
| 1.0 | 0.9 | 1.0
| -39.3% |
| HM Revenue and Customs | 0.4 |
0.3 | 0.1 | 0.1 |
0.1 | -77.2% |
| Locally-financed expenditure | 5.4
| 4.3 | 4.0 | 3.8
| 3.7 | -37.6% |
| Public corporations | 7.4 |
7.4 | 7.3 | 7.3 |
7.3 | -10.2% |
| Other gross investment | 0.4 |
2.1 | 2.1 | 2.2 |
2.2 | - |
| Accounting adjustments | -7.9
| -6.8 | -6.8 | -6.9
| -6.2 | |
| Public Sector Gross | |
| | | |
|
| Investment | 59.5 | 50.7
| 48.5 | 45.6 | 47.2
| -27.8% |
| Change from June Budget | 0
| +2.0 | +2.0 | +2.3
| +2.3 | - |
C. PROGRAMME DETAILS
Energy and low carbon
— Carbon Reduction Commitment (CRC): The CRC is a compulsory
carbon emissions trading scheme for large public and private sector
organisations. The full CRC scheme comes into effect in April
2012, although those organisations to which it applies are required
to have registered by September 2010 in order to monitor their
energy use. Under the scheme, participants are required to purchase
allowances for the energy they use. All the money raised through
the scheme was to be recycled back to businesses depending on
how well they performed. However, the Spending Review announced
that the government would instead retain all the revenues raised
through the scheme, turning it effectively into a new green tax.
Businesses that have just signed up to the scheme will be very
let down by the Government's unexpected announcement that it will
remove the cash-back bonus incentive.
— Carbon capture and storage: The Spending Review announced
a number of funding commitments to support the transition to a
low carbon economy:
— up to £1 billion for commercial scale carbon
capture and storage demonstrations on an electricity generation
plant. This will help put the UK at the head of global efforts
to tackle carbon emissions.
— £200 million for the development of low carbon
technologies including offshore wind technology and manufacturing
at ports sites.
— £860 million of additional support over the Spending
Review period to support households and businesses investing in
renewable heat measures.
— Green Investment Bank (GIB): Government funding of
£1 billion for the GIB will materialise in 2013-14.
Education and skills
— Higher education funding: the Spending Review announced
that, from the 2012-13 academic year, universities will be able
to increase graduate contributions. However, the idea of a pure
graduate tax also seems to have been formally dropped, although
additional student contributions seem likely to be more heavily
weighted on the better off. The CBI's Higher Education Task Force
recommended that students should pay more for degrees through
raising the tuition fee cap. There will also be loan support from
Government for full and, for the first time, part time students,
with an offsetting reduction in the teaching grant. We welcome
the extension of support to a wider range of students. The government
will provide a fuller response to the recommendations of the Browne
review in due course.
— Adult apprenticeships: The Spending Review announced
an increase in adult apprenticeship funding of £250 million
a year, helping 75,000 new apprentices, by 2014-15.The CBI has
consistently called for increased funding for apprenticeships
given the proven benefits to business and individual, and the
government had already indicated its intention to shift skills
resources towards apprenticeships programmes. The focus should
be on employer-led apprenticeship provision, and the next step
must be to tackle some of the barriers to employer involvement,
such as bureaucracy and the relevance of qualifications.
— Train to gain: This has now been scrapped. The CBI
has been critical of Train to Gain in the past because it was
bureaucratic, funding did not always meet employer needs and deadweight
costs were substantial. Ministers have indicated that some funding
will be available for non-apprenticeship training under another
guise.
Public sector reform
— Efficiency: It is encouraging to see the Chancellor's
emphasis on reducing administrative, back office and procurement
costs through sharing services and eliminating duplication. These
were in line with the CBI's recommendations in "Time for
Action" which set out the public service reform steps the
Government should take in its first 100 days. The way these plans
are implemented will be critical.
— Competition: The Spending Review indicated a welcome
emphasis on diversity of provision in welfare to work and offender
rehabilitation services, and the CBI hopes that this approach
will not be restricted to these areas, particularly given that
health and education are still run as near public sector monopolies.
The voluntary and community sectors and social and private enterprises
have a strong and proven track record in delivering efficient
and effective public services that are popular with those that
use them and deliver outcomes that benefit society as a whole.
— Public sector pensions: Public sector employee pension
contributions are to rise from 2012-13 delivering savings rising
to £1.8 billion by 2014-15. We welcome the commitment to
tackling the spiralling cost of public sector pensions. Public
sector pensions must be put onto a sustainable footing, with the
full cost recognised and met by employers and employees together.
Science, innovation and R&D
— Science: The Spending Review provided some protection
for the science budget, freezing it in cash terms at £4.6
Billion per year to 2014-15. The CBI welcomes this acknowledgement
of the contribution that science makes to the economy, and the
intention to focus on funding "excellence". We will
be looking for `excellence' to include factors recognised by business
(not just for it to be measured by academic peer review and academic
papers). Confirmation of funding for Diamond Synchrotron, and
UK Centre for Medical Research and Innovation is also welcome.
— Research: The Medical Research Council is to have
its budget protected in real terms, rather than just cash terms,
but additional cuts to other Research Councils are implied and
this will need to be managed carefully—the EPSRC (Engineering
and Physical Sciences Research Council) and Technology Strategy
Board engage most with business (in particular supporting collaborative
research with manufacturing sectors), which should be prioritised
to maximise future growth potential in the UK.
— Manufacturing and business development support: The
government is to provide £200 million a year by 2014-15,
with a focus on supporting potential high growth companies and
the commercialisation of technologies, including funding for an
elite network of Research and Development intensive technology
and innovation centres. The CBI has advised that the TICs should
be built up from existing capacity, first bringing together the
best existing infrastructure to create critical mass. There is
no specific mention of funding for the Technology Strategy Board,
nor of its role going forward, which we have said is core to future
sector and innovation activity. In the year prior to the election,
the government spent £320 Million on innovation (including
sector support and collaborative R&D) through the RDAs, £300m
through baseline funding for the Technology Strategy Board, plus
additional spending via the Strategic Investment Fund (SIF), which
included £150 Million on advanced manufacturing alone. If
these elements are taken together, it seems to imply the government
is reducing investment in manufacturing and technology by three
quarters. If so, this is not conducive to growth.
— Enterprise Finance Guarantee Scheme: Funding for this
will continue. The CBI welcomes this announcement as we had called
for temporary extension and review to determine if needed long-term.
November 2010
5
Government spending identities: Total managed expenditure = Gross
investment + Current expenditure; Current expenditure = Current
DEL + Benefits and tax credits + Other AME Back
|
