Dividing up the pie

The Comprehensive Spending Review (CSR) is the government's new plan for how to spend our money for the next three years until the end of this Parliament. In a special two-part report, BBC News online looks at how this plan will affect us, the taxpayers.

The new figures for public spending, announced in July 1998, will apply from the financial year 1999-2000.

The review has two main purposes - to ensure that government spending stays under control and that it is concentrated on Labour's priority areas.

The government has already announced that the overall current spending limit will be 2¼% per year, in line with the estimated growth of the economy, with an additional ½% to boost public investment,

Annual spending is growing more slowely under Labour

But there has been virtually no growth in public spending for the first two years Labour has been in office, as the government adopted the spending plans of its conservative predecessors virtually unchanged. This means that the average growth of spending will still be lower under Labour than it was for most of Tory rule.

The big increase in government capital spending - on things like roads, school buildings and hospital equipment - also has to be seen in perspective. The planned boost, from £7bn to £13bn, only takes capital spending back to the levels of 1993-94. And it is still only 4% of total spending.

Who will get more?

The CSR is about how the government can put more resources into areas it considers its political priorities - notably health and education.

These are already the two largest areas of spending being reviewed - totalling £80bn between them.

But there is quite a bit of catching up to do.

The government has pledged to raise the proportion of national income spent on education. That would imply an increase of at least £1.8bn a year or £5.5bn for the three years. Education spending has actually fallen substantially over the past 20 years.

There may be more money for hospitals

The position in the health service is even more critical. Health spending rose by over 3% annually under the Conservatives, but this is reckoned to be only enough to keep up with demand. Meeting the cost of introducing advanced treatments and coping with the growing number of very old people in the population soaks up resources.

To meet this demand, health spending would have to increase by £2.6bn a year, or £8bn over the three years. The health professionals themselves argue that closer to £10bn is needed to restore the NHS to good health.

Where to cut?

The difficulty is that there is relatively little scope to make major cuts in other areas of departmental spending.

The government has excluded from its review half of all expenditure on the grounds that it is not under its direct control.

This includes social security payments, some local government spending and debt interest, which depends on interest rates.

Defence cuts were limited

The largest single department, Defence, has already has its review of spending, and yielded a relatively modest £685m annual savings by 2002.

The next largest, Law and Order, is likely to be another political priority, with bulging prisons and demand for more policemen on the beat.

That leaves a clutch of smaller departments vulnerable to having their budgets savaged - including Transport, Agriculture, and Trade and Industry. But these three only spend less than £10bn between them - less than the projected £13bn increase in health and education alone.

The Comprehensive Spending Review, Part 2: What could go wrong?