How to torpedo public spending (without suffering the political fallout)

Defence chiefs accept that they will not be spared from the Treasury’s spending cuts despite the strong argument that it is essential to maintain funding with forces engaged in war. The battle is between the heads of the three services over how they share the shrinking allocation.

The defence budget was £38bn last year, around 2.2 per cent of GDP. It will not be cut in absolute terms, rather the rate of growth will be reduced.

Not so long ago the Royal Navy was celebrating the coup of getting two aircraft carriers. But that project is looking vulnerable, especially as the programme is £1bn over budget. The Army has been lobbying against the carriers, saying that British forces will be fighting land wars such as Afghanistan.

One argument for continuing with the aircraft carriers is to protect jobs. But that is likely to be on a short-term basis with the Ministry of Defence apparently planning to shut two shipyards once the carriers are launched in 2014.

The £76m programme to replace the Trident missile system is looking vulnerable.

The RAF is also facing cuts with the planned Typhoon fleet reduced from 232 to 123 and the planned Nimrod fleet reduced from 22 to nine.

The Army, which has been doing the great bulk of the fighting in Iraq and Afghanistan, points out that only 10 per cent of the equipment budget for 2003-18 was earmarked for land warfare.

Verdict Big ticket spending items, such as Trident, highly vulnerable. But troop numbers in Afghanistan ring-fenced.

Kim Sengupta

Welfare: Pensioners could be hit with test for allowance

Social security spending is so vast ? it will reach almost £165bn this year ? that common sense suggests savings should be easy to identify.

But recession lengthens dole queues and so increases the pressure on the budgets for benefits. Ministers also hesitate to wield the axe in areas that are so politically sensitive.

This week, the Government announced under-25s who have been unemployed for a year could be denied benefits if they refuse to accept the offer of a job, training or work experience. One draconian option to cut spending further could be to bring in the sanction after a shorter period of joblessness or extending it to all ages.

The job of getting the long-term jobless off benefits could be privatised, handing responsibility to recruitment agencies, which could carry upfront costs but ultimately save cash.

All parties are committed to raising state pensions in line with earnings, but the move would carry a weighty price tag. Abandoning the promise would save rising amounts of money.

Winter fuel payments ? worth £250 for the over-60s or £400 for the over-80s ? could be means-tested, as could child benefit. That step would counter accusations that the payments have become spending money for middle-class families.

Verdict Pensioners could be hardest hit with the scrapping of plans to link pensions with earnings and means-testing winter fuel allowance.

Nigel Morris

Education: Schools are safe ? but universities are not

Labour says it will continue to increase investment in schools if returned to power at the next election, but the books shows Ed Balls’ department is seeking £650m in efficiency savings after then.

Key areas could be axing quangos ? the Learning and Skills Council, blamed for the funding crisis that crippled college capital spending projects last autumn, is for the chop.

Mr Balls has indicated that some areas will face cuts to fund what he calls his “September guarantee” ? that every young person who wants to stay on at school, go to college or begin training after 16 will be found a place. As a result of this week’s White Paper on education, a £150m contract with Capita to fund the “national strategies” ? telling teachers how they can improve maths and English teaching ? is being axed.

Under the Conservatives, the £55bn secondary school rebuilding programme will be pruned.

The decision by Michael Gove, the shadow Education Secretary, to axe national curriculum tests for 11-year-olds in primary schools and do them at the beginning of secondary school will also save money.

Both parties say school spending is a priority ? which means universities are in for a rough time. Whichever party is elected will raise university top-up fees ? to £5,000 a year if the man appointed by ministers to oversee fair admissions procedures, Sir Martin Harris, gets his way.

I would be reluctant to make such a hike ? the scarcity of jobs might make young people more reluctant to contemplate going into debt.

I would be more ruthless than just scrapping the national strategies and clamping down on consultancies. A report from the Commons Public Accounts Committee revealed last week that the Government paid KPMG £450,000 for three years to mastermind its school-building programme. The work could be done by civil servants instead at a major saving.

The National Audit Office said schools have kept £1bn in their reserves ? which could turn out to be one of their most prudent decisions.

Verdict School are safe ? but not universities or further education colleges.

Richard Garner

Health: Make cuts now before feast turns to famine

All political parties are agreed that the NHS must be protected from cuts. Don’t believe them. For the last decade, the cash has flooded in faster than at any time in the NHS’s history. In 2009-10, the budget for the NHS in England is £102.6bn. That is £61bn more than in 1997-98, an eye-watering real terms increase of more than £34bn.

That is not all. Last year, the NHS underspent, leaving a juicy £1.7bn surplus. Almost half ? £800m ? will be invested in front-line services between now and the end of 2010-11, but that still leaves almost £1bn to be picked by the Treasury. The NHS needs the money to cushion it when the real squeeze starts in 2010-11. Until then, the NHS is relatively protected ? spending by primary care trusts (80 per cent of the NHS total) will continue to rise at the planned 5.5 per cent a year for the next two years.

After that? The years of plenty are to be followed by years of famine. The King’s Fund, the health policy think-tank, says the situation looks very serious indeed with “very low, zero or negative growth” in funding in real terms for the NHS. Over the past decade, resources and staffing have soared in the NHS, but productivity has fallen. Politicians are certain to want improvements to get more bang for the bucks. The simplest strategy is to cut the prices primary care trusts pay hospitals for operations and other services, as is already planned from 2010. If prices fall, hospitals will have to up their game to maintain their income. But it is unlikely to be enough.

My proposal: A vast amount of what the NHS does is not worth doing ? because treatments are obsolete or have been superseded by more modern approaches. Hysterectomies, tonsillectomies, surgery for glue ear are all costly procedures of (mostly) questionable benefit. The National Institute for Clinical Excellence was asked to recommend areas from which the NHS should disinvest, but has made little progress. It should accelerate its programme now.

Verdict Health spending may not decrease ? but it will be frozen ? and given the rising costs of new treatments, it will certainly feel like cuts.

Jeremy Laurance

Transport: High-speed plan derailed

Recent events have made funding at the Department for Transport look eye-wateringly tight. Its budget was squeezed last year to contribute to the Government’s economic stimulus package. Road-building programmes were brought forward, while future budgets were also raided to pay for 200 train carriages to relieve congestion.

The cupboard looks bare for the next few years as a result, which may put major projects at risk. That could include the electrification of the Midland Main Line and Great Western lines, a key plank in the Government’s plan to meet carbon emissions targets. Efficiency savings are already under way ? an additional £200m was found as part of the Budget, meaning £1.96bn has been stripped from the department’s budget over three years.

The decision to re-nationalise the East Coast Main Line is likely to cut expected revenue by hundreds of millions. When the line is put out to tender again, it is certain to fetch much less than the £1.4bn that National Express paid for it at the top of the market in 2007. Some believe things could become so bad that the Government will have to cut services as further franchises collapse. “National Express is the first domino to fall,” said Roger Ford, a rail expert. “The Government may have to impose service cuts to shrink its costs.”

Disappearing over the horizon is Lord Adonis’s dream of building a high-speed rail line from Heathrow to the Midlands and beyond. He has admitted that a multibillion-pound public subsidy may be needed for the project, but the financial strains on his department now make the scheme look further off than ever.

Verdict Big plans for rail electrification and a high-speed line look difficult to achieve, while the future road building budget has been raided already. Not much left in the tank.

Michael Savage

Home Office: The big savings are tricky political choices

Alan Johnson’s less than wholehearted support for ID cards on Tuesday will have had Labour’s budget planners rubbing their hands with glee. The estimated cost saving over the next 10 years could be more than £5bn. Even if ministers went ahead with a voluntary scheme, there would still be a saving of up to £2bn.

Other law and order cuts will prove more problematic. A penal reform programme reversing Labour’s commitment to build more prisons might save as much as £3bn. The Government proposes to spend that amount on building five new jails for 7,500 prisoners. Prison reform campaigners argue that an effective community sentencing scheme could offset the cost of keeping thousands of non-violent offenders in jail. Over a period of 10 years this could save £10bn.

Police forces are already facing cuts to front-line officers to meet efficiency targets, at a time when crime levels are expected to rise amid the recession. Axing admin staff and consultants could save the Home Office a further £500m a year, while a more radical plan would see a greater role for community support officers at the expense of fully trained policemen.

Labour’s fixation with saving via curbing the right to trial by jury has stirred up hostility. A more radical administration might return to Jack Straw’s 2000 plans to remove the right to jury trial for petty offenders. The Government is also busy bearing down on the £2bn annual legal aid budget. Further plans to make more criminals pay for their defence lawyers could save millions.

Verdict Scrapping the ID scheme is on the cards. Removing beat officers or ending jury trials are both politically risky.

Robert Verkaik

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