The chancellor’s comprehensive 2013 Spending Review announced the long awaited news about how top level reductions of £11.5bn will be achieved in 2015-16. Individual departments have two years to specifically work-out the details about which programmes they want to prioritise and how specific reductions in spending will be achieved.
But does it provide evidence of whether “we are all in it together” and where the pain is being felt? Raj Patel, Impact Fellow for Understanding Society, the UK’s Household Longitudinal Study, points out some of the things the Spending Review doesn’t tell us.
Revised GDP figures by the Office for National Statistics show that the initial slump was 7.3% in the six quarters from Q2 in 2008, much worse than the 6.5% initially calculated.
Whilst it took four years to restore output during the Great Depression, we are already into the fifth year since the crash, and even with signs of a tentative economy recovery, it will be a while before the economy achieves its pre-recession level output.
Whoever is Chancellor after 2015, the critical decision will be about the choices between tax rises, further spending cuts and measures to clamp down on tax avoidance taking place at an industrial scale.
If cross-party consensus starts to emerge on health and education, and other departments can’t be cut any further, welfare cuts will continue drive the austerity agenda, not least as Annually Managed Expenditure (AME) is continuing to grow.
As a precursor to the next election campaign, the political dimension to the spending review was clear, and received extensive news coverage. But how are individuals and households being affected by spending decisions? Alongside the Spending Review, and little noticed by the media, the Government also published its distribution analysis of the impact of the spending plans on households, including all fiscal events since 2010.
Distributional analysis is critically important as it goes to the heart of analysing where the pain is being felt. And whilst the bigger picture of who is hurting really depends on what is happening to employment, household incomes and expenditure for different groups, the distributional effects of the spending review adds another layer of evidence.
Such analysis can be complicated, and the Government’s own research focuses on spending that directly benefits households such as education, health, benefits, local authority services and skills – rather than public expenditure which benefits the population as a whole, for example, road building and environmental improvements.
But we are not any wiser beyond the well-known fact that people on lower incomes benefit more from public services than those on higher incomes. For example, school funding is progressively focused on more deprived schools.
There are a number of short-comings of the Spending Review and its distributional analysis:
- There is surprisingly no analysis of the geographical effects, given local authority spending accounts for a substantial part of public spending, and other departmental spending will be weighted to factor in local circumstances
- Fairness between generations is of growing concern. Analysis of public spending aimed at different generations and the impact of spending decisions now need to be become a standard feature of the Spending Review. The introduction of tuition fees, for example, has already changed the profile of public spending between the generations.
- The information on the distributional effects is presented by quintiles rather than deciles, possibly hiding variations. This agglomeration of income groups doesn’t align well with a wide range of other statistics and research on issues such as income, wealth and poverty.
With spending decisions continuing to be hotly debated for years to come, surely transparency demands that we have better evidence about where the pain is being felt.
Raj Patel is Impact fellow for the UK Household Longitudinal Study, Understanding Society