The Tories are considering cuts to the NHS and overseas aid

Osborne may use next year's Spending Review to remove the ring-fence on health and international development spending.

Ahead of next year's expected spending review (which would cover spending from 2015-2017), the Guardian's Patrick Wintour reports that the Tories are unsure whether they will be able to repeat their 2010 pledge to ring-fence spending on health and international development.

Given the deteriorating fiscal situation, this is no surprise. When George Osborne delivered his first Budget in June 2010, the newly-established Office for the Budget Responsibility forecast that the deficit would fall from £154.7bn (11%) in 2010 to £37bn (2.1%) in 2015. But the failure of Osborne's strategy to deliver growth (indeed, its success in delivering recession) means that, according to the latest independent forecasts, it will now stand at £96.1bn (5.8%).

In response, the Chancellor has already been forced to extend his austerity programme by two years to 2017 (going further, David Cameron has suggested he may need an extra five) and has declared his intention to seek another £10bn of welfare cuts (the reason he tried - and failed - to remove Iain Duncan Smith, who is opposed to further cuts, from his post in this week's reshuffle). With the fiscal situation likely to worsen further as growth remains anaemic or non-existent (the OECD today predicted that the UK economy would shrink by 0.7% this year, a worse peformance than any G7 country except Italy), Osborne is on the hunt for further savings.

Few Tory MPs would weep at the demise of the NHS/overseas aid ring-fence (many were outraged that defence spending was cut by 7.5%, while overseas aid received a 35% real-terms increase) but such a decision would inflict further damage on Cameron's brand. Against this, the Tories believe that a 2013 spending review would cause trouble for Labour by forcing it to come clean about where it would cut. As Treasury select committee chairman Andrew Tyries has said: "Labour would have to respond. Having the coalition parties committed to the same spending path halfway into the next Parliament makes it very difficult for Labour at the election."

The biggest question facing Balls and Miliband remains whether to accept the Tories' spending plans, as Labour did in 1997, or offer a distinct alternative.

George Osborne arrives at Downing Street yesterday for the first cabinet meeting since the reshuffle. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.