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Last Updated: Monday, 12 July, 2004, 18:11 GMT 19:11 UK
Do Mr Brown's sums add up ?
By Stephen Coulter
BBC economics analyst

NHS funding gets a 7.3% annual real increase in its budget up to 2007-08.
Few things cheer the hearts of Labour backbenchers more than the sound of their Chancellor pledging bucket-loads of extra cash for public services.

Gordon Brown did his level best to make their day.

The rate of growth of government spending will slow sharply compared with the splurges of recent years.

Even so Mr Brown was still able to announce large inflation-busting rises in the budgets of key departments like health and education, while avoiding outright cuts elsewhere.

Departmental spending is due to rise by over 40bn between 2005-06 - the first year covered by this three year spending review - and 2007-08, when it will reach 340bn.

Spending slowdown

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Ultimately, there were few surprises in this spending review, largely because so much of the detail was made known beforehand.

We already knew what health was going to get from the five year review of NHS funding completed in 2002, which pledged a 7.3% annual real increase in its budget up to 2007-08.

Meanwhile, education's 4.4% annual increase was laid out in the March 2004 Budget.

The Treasury had been warning that spending would decelerate sharply compared with recent years, although it would continue to grow at a faster rate than the economy was expanding.

Winners and losers

All this begged the question: "would there be any money left for other government departments"?

In the end there was, but there were definite winners and losers.

Among the former was David Blunkett's Home Office, which will see its budget increase by 2.2bn to 14.9bn.

Much of this money will go towards putting more officers on the beat, although they will mostly be community wardens, rather than fully trained police officers.

Elsewhere, transport avoided the mauling that had been predicted for it, with an average 4.5% real increase, while international aid, the war on terror, science research and teaching and arts and culture also did quite well.

But not everyone will be happy.

When an increase is a loss

Defence had been pinpointed by much of the press as a relative winner from the spending review.

In the end the MoD got a 1.2% annual real increase in its budget - an extra 3bn over three years.

This was roughly the same as its previous settlement in 2002.

But with soaring equipment costs this still leaves the military strapped for cash, and may not be enough to stave off deep cuts in manpower.

The defence budget will shrink as a share of GDP, leaving military spending lower, in real terms, than it was when Labour came to power, despite the extra commitments it faces in Iraq and Afghanistan.


At least as important a question as where all this money was going, was where was it coming from?

With government borrowing deeply in the red, and unpopular tax rises looming, Mr Brown made much of his plans, outlined in the report by Sir Peter Gershon, to save 21bn by axing up to 104,000 civil service jobs and streamlining government procurement.

But his numerous critics on this point to the folly of spending your savings before you've achieved them.

The CBI, a business lobby group, says that the civil service lacks the project management skills to make Sir Peter's ambitious reforms work.

Other critics point out that the 2.5% improvement in civil service efficiency that the Treasury expects is more than the Treasury's own 2.25% long term forecasts for increases in productivity across the whole economy.

In other words, it is expecting Whitehall to suddenly become more efficient than vast swathes of the real economy.

Spending political capital

With perhaps less than a year to go before a general election, this spending review was always going to be as much about politics as anything else.

Its underlying purpose was to throw some tough questions at the opposition over their own spending plans - particularly the Conservatives.

Their pledge to match Labour on health and education leaves little else in the pot for traditional Tory favourites like law and order.

In this respect Gordon Brown can look back on a productive afternoon.


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