The Comprehensive Spending Review – big government is here to stay

24 September 2010

When governments speak of cuts, they often mean reducing previously planned increases in spending and most public sector workers have little to fear from the CSR, writes Richard Wellings

Public sector workers are understandably concerned about the outcome of the Comprehensive Spending Review (CSR). Trade union leaders have recently spoken of strikes and civil disobedience against planned cuts.

Yet such reactions are mostly based on rhetoric rather than reality. The fine print of George Osborne's Emergency Budget reveals that government spending in real terms will remain more or less steady over the next five years. Indeed, when ministers speak of cuts, they often mean a reduction in previously planned increases in expenditure. The Treasury's optimistic forecasts for economic growth are the key to the coalition's deficit reduction programme rather than any dramatic scaling back of public services.

Nevertheless, since the budget for the NHS has been ringfenced, many of the mammoth welfare costs are politically untouchable, and because debt interest payments are likely to rise significantly, there will be immense pressure to make savings in some areas.

The history of previous "post-recession" periods suggests that capital expenditure will be a major target. We have already seen the cancellation of hundreds of school building projects and this will be just the start. Social housing grants to councils and housing associations will be pared back still further. And while expensive transport schemes such as Crossrail and High Speed 2 probably won't be abandoned entirely, their timelines may well be extended and their specifications reduced. A similar strategy is likely to be applied to major defence items such as Trident. The rate at which new hospitals are commissioned is likely to slow to a trickle as the NHS budget is diverted to "front-line" services to cope with the needs of ageing baby-boomers.

Another focus will be big IT projects, which in recent years have been plagued by delays, huge cost overruns and embarrassing failures in implementation. The Treasury has estimated total government IT spending at about £16 billion a year, and this clearly a relatively easy expenditure item to slash without significant political repercussions.

Such a policy will, however, mean ending the cosy relationship between departments and a small number of large IT companies. Similarly, the firms that rely on government contracts in defence, transport, education and so on, are likely to bear the brunt of economies in these areas rather than public sector workers.

The UK's network of quangos will be another focus of the CSR. There are over one thousand of these agencies in the UK and a programme of rationalisation is certainly on the cards. Many quangos have a low profile and their roles are not well understood by the public. This makes them an easy target when political expediency rather than economic efficiency is the overriding determinant of where the axe falls.

Having said this, a significant proportion of quangos are very difficult to abolish. Some perform the basic functions of government, such as HM Revenue and Customs and HM Courts Service, while others are effectively required in order to implement European Union directives. It was instructive that the coalition was unable to remove an unnecessary tier of government by abolishing the Regional Development Agencies (RDAs). Instead, it is replacing them with Local Enterprise Partnerships and transferring some of the RDAs' responsibilities to the Department of Business Innovation and Skills.

This pattern is likely to be repeated across government following the CSR. Quangos will certainly be abolished and ministers will speak of radical action being taken to tackle the deficit and reduce the role of the state. But in practice most of the staff and nearly all of the functions will be transferred to other agencies. There appears to be no genuine appetite within the coalition for the kind of attack on red tape necessary to slim down government bureaucracy significantly.

In conclusion, most public sector workers have little to fear from the findings of the CSR. There will be high-profile casualties, but the era of big government is definitely here to stay. Even if union predictions of 200,000 job losses in the near term come to fruition, this will represent well under 5 per cent of the total public sector workforce.

The coalition's lack of radicalism may be reassuring to government workers, as well as the millions dependent on welfare benefits, but it also means that policymakers are doing little to create the kind of low-tax, low-regulation environment where entrepreneurship can flourish. The deeper issue of Britain's rapid relative economic decline is not being addressed and as a consequence both public and private sector employees will be poorer in the long run.

Dr Richard Wellings is Deputy Editorial Director at the Institute of Economic Affairs (www.iea.org.uk)