Leaks on cuts will be punished

Ministers could be hit with further budget cuts if they release early details of their department's

Ministers could be punished for leaking early details of spending cuts with last-minute changes to their budgets, the Financial Times has reported.

With the party conference season about to get underway in earnest, Cameron clearly doesn't want speculation about cuts to distract from the Tories' first conference in government for 13 years, and is planning to use the threat of imposed spending cuts to keep his ministers on message during this period. Control will even extend to the conference itself, the FT reports:

"One senior government official said the Treasury would be vetting all ministerial conference speeches to avoid any hint of new spending commitments."

Provisional deals are already in place for some departments ahead of the announcement of the comprehensive spending review on October 20, but David Cameron is said to be anxious to reveal the spending cuts as a complete package, rather than have different elements leak out at different times, dominating the news cycle and distorting the image he wants to present.

The news that the information will be quite so tightly controlled seems to confirm that Cameron is more than a little concerned about the potential ramifications if the cuts are presented the "wrong" way. Ahead of the AV referendum and the local elections next year, the spending review will be the first major test for the unity of the coalition. David Cameron and George Osborne need to prove to the electorate that their cuts are necessary for recovery, not merely ideological, while Nick Clegg has to keep the left of his party convinced that their interests are served by lending their support. And as my colleague George Eaton pointed out yesterday, opposition to the cuts is gathering momentum on several fronts already, and any leaks of the "outline settlements" currently being negotiated would only fuel this movement further.

Leaking details of departmental proposals to the press used to be a tried and tested way for ministers to try and circumvent the Treasury in securing funding (as immortalised in the first ever episode of The Thick of It). But the FT's "senior government official" warns that this trick won't work this time because Cameron and Osborne are "completely united" on this. So, if any leaks are made over the next few weeks, we'll know it has nothing to do with trying to preserve departmental budgets, and everything to do with personal rebellion against the coalition's leaders.

Caroline Crampton is web editor of the New Statesman.

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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR