Q&A: Spending Review

Chancellor George Osborne has outlined the government's spending plans for 2015/16. Here's a guide to the event.

What is a Spending Review?

The brainchild of former chancellor Gordon Brown, spending reviews are used to set out the maximum amount government departments can spend over a set period of time. It is then up to the 17 individual departments to decide how to slice up the cake.

Why does it matter?

The most important routine task carried out by any government - after deciding tax levels - is working out how much cash to spend and on what. It will have a direct impact on the public services we all use. But it does not cover all public spending - major items like social security, pensions and debt interest are not part of it.

What period does it cover?

This Spending Review covers a single financial year - 2015/16. That is much shorter than previous reviews, which have usually covered three or four year periods.

Why is it such a short period?

The deep cuts outlined in George Osborne's first spending review, in 2010, covered a four year period and were meant to fix Britain's public finances within a single parliament. But the economic recovery has not been as strong as expected, so Mr Osborne has had to squeeze in extra cuts for 2015/16, taking us beyond the next general election.

So Labour could reverse all of the cuts if they win the next election?

Labour has said it will stick to the spending plans announced by Mr Osborne for 2015/16 if it returns to power in the May 2015 election.

Why is the Spending Review being held now?

Chancellor George Osborne says he wants to give certainty and stability to government departments. Critics say it is about making the coalition parties appear tougher than Labour on spending.

What is in this Spending Review?

Mr Osborne needs to find a further £11.5bn in savings from government departments in 2015/16. That means big cuts to the budgets of many departments already feeling the squeeze from the 2010 review.

Who gets spared?

The axe won't fall on schools, the NHS and overseas aid, whose budgets will continue to be protected. That adds up to 60% of all departmental spending. But it also means the other departments have had to bear a heavier burden, with average budget cuts of 8%. If all departments were included in the review the average cut would be 2.8%.

So, what are the cuts?

  • A new welfare cap to be set each year at the Budget for four years from April 2015, including housing benefit, tax credits, disability benefits and pensioner benefits but not the state pension
  • Winter fuel payments for people living abroad to be linked to a temperature test from autumn 2015
  • Public sector pay rises will be limited to an average of up to 1% for 2015/16 and automatic progression pay in the civil service will be ended by 2015/16
  • The government will work to remove automatic pay rises for time served in schools, NHS, prisons and police - but not the armed forces
  • The Home Office resource budget is to be cut by 6% to £9.9bn. However the police budget will decrease by less than that and counter terrorism budget not at all
  • The Ministry of Defence's resource budget will be maintained in cash terms at £24bn while defence equipment budget will be £14bn and will grow by 1% in real terms in following years
  • There will be cuts of 10% to the Scotland, Wales and Northern Ireland offices and 7% to the Department for Culture, Media and Sport.
  • Local government resource budget will be cut by 10% but local government spending by 2%
  • Treasury and Cabinet Office resource budgets to be reduced by 10% in 2015/16
  • Increase of 3.4% in intelligence services budget
  • Foreign Office budget reduced by 8%
  • Departmental budget of Ministry of Justice to be cut by 10%
  • Department for Transport to make 9% saving in day-to-day spending, but gets biggest boost to its capital budget, which rises to £9.5bn every year to 2020
  • Department for Energy and Climate Change resource budget cut by 8% and the Department for Environment budget cut by 10%
  • Department for Business resource budget cut by 6%, including no increase in university student grants, but 9% increase in capital investment - particularly in science
  • Education Department overall budget to increase to £53bn and school spending protected in real terms
  • HM Revenue and Customs resource budget cut by 5%, but extra resources provided to tackle tax evasion
  • Department for International Development budget set at £11.1bn for 2015/16
  • NHS budget for 2015/16 will be £110bn, while capital spending will rise to £4.7bn

How do departments make these savings?

It is up to them. Most stress the importance of protecting "frontline" services and cutting waste. But some critics have warned that this round of cuts could seriously affect services, particularly at a local level.

What happened in the last Spending Review?

George Osborne unveiled cuts averaging 19% across all departments - apart from health, schools and international aid which were "ring-fenced". This was less than the 25% cuts some had feared but still represented the biggest overall reduction in public spending in decades. Local government, the foreign office, justice, rural affairs, the home office and welfare were among the hardest hit.

Why are more cuts needed now?

The coalition was committed to wiping out Britain's record budget deficit within five years - through 80% spending cuts and 20% tax rises. But the figures were based on an economic recovery that failed to materialise, meaning tax revenue was much lower than expected.

Will this be the final round of public spending cuts?

It seems very unlikely to be the last of the spending cuts, whichever party wins the next general election. Two leading think tanks recently warned that Britain faces a further seven years of austerity, but better than expected growth could change things - as could a future government deciding to increase taxes instead of cutting spending further.

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