Page last updated at 03:28 GMT, Sunday, 20 September 2009 04:28 UK

Q&A: Spending cuts

The next general election looks set to be dominated by one issue: public spending cuts. Here is what the debate is all about.

How much does the government spend?

Total government spending in 2007/08 was £620bn, an increase of 7% on the previous year. That adds up to 44% of the national income.

Which departments are the biggest spenders?

The Department of Work and Pensions, which is responsible for benefit payments, spent £135.7bn last year, an increase of 8%. The Treasury was the next biggest spender on £109.5bn - an increase of 50% on the previous year. The Department of Health was third, on £109.4bn.

Why are politicians on all sides now saying public spending has to be cut?

Britain has a record national debt of £804.8 bn to pay off. It means any future government will have to cut costs - either through spending cuts, tax increases, benefit cuts or a combination of all three. The government has decided 80% of the savings will come from spending cuts over four years starting from 2010, with 20% from the tax rises announced in the Budget, according to the Institute of Fiscal Studies. It has not said how it would cut spending in the years after that.

How has this happened?

The government spent £85.5bn last year on bailing out the banks and pumping cash into the economy in an effort to stave-off a full-blown depression. The recession is also taking its toll - leaked Treasury papers suggest the social security bill will have to rise by 14% a year - and the government is facing an increase in contributions to public sector pensions and payments to the EU. Without these extra costs - and an 11% annual rise in debt payments - public spending would not need to fall, the leaked documents suggest.

How big will the cuts have to be?

The Institute for Fiscal Studies is predicting the biggest squeeze in spending on public services since the late 1970s when the Labour government was forced to got to the IMF for a bail-out. Both Labour and the Tories have said they want to more than halve the budget deficit by 2013/14. Leaked Treasury documents include plans to cut spending across departments by a total of 9.3% over four years from 2010 - more than most independent experts were predicting.

When will the cuts start?

That is the crucial question. The government plans to start tightening the country's finances next year - and to steadily tighten the screw over the following seven years. The Tories say cuts should start now - or Britain will risk losing credibility on the money markets, leading to a rise in interest rates, potentially wrecking any recovery. Labour and the Lib Dems say cutting too soon risks jeopardising recovery.

So where are the spending cuts going to come?

Until Ed Balls' comments about education, no-one had really been prepared to say.

Why won't the government tell us?

Ministers are generally unable or unwilling to put their cards on the table this far out from a general election. Gordon Brown may have uttered the "c" word - cuts - for the first time in his speech to the TUC this week after months of insisting spending would continue to rise, but he did not go into specifics. He said four things would be cut: "inefficiencies", "costs", "unnecessary programmes" and "lower priority budgets" even though these are all areas where spending has supposedly been pared down already.

Have the opposition been any more forthcoming?

The Tories have been adamant about the need for cuts for some time - but they say they are still putting the finishing touches to their plans. Vince Cable, for the Liberal Democrats, has outlined nine areas where public spending must be cut. But he has to get his ideas approved by his party before they can become official policy.

When are they are going to tell us?

Tory leader David Cameron has said he will set out detailed proposals before the next election, which must happed by June. The Lib Dems have been detailing some proposed cuts at their annual conference. Labour are expected to give more details on where the axe might fall in the pre-Budget report in November.

So where is the axe likely to fall?

All parties have plans to reform the ballooning welfare budget, which could mean cuts in universal benefits, such as child benefit, for the better-off. There will also be a big slowdown in capital spending whoever wins the election - which means far fewer new hospitals and schools. Public sector pay and pensions are also likely to be squeezed, whoever wins power. There is also talk of more privatisations. And all the parties are eyeing potential savings in the £44bn defence budget - particularly the replacement for Trident nuclear weapons. The Tories have promised an immediate full scale review if they win power. But all of the ideas suggest so far by the government and the opposition parties are a drop in the ocean compared to the scale of cuts needed, the IFS has said.

Is anything being cut now?

There are already programmes in place for big "efficiency savings" in the public sector. Ministers have also been told to look for fresh savings in their own departments. And the government has made a start, in a small way, on cutting the benefits bill by scrapping plans to extend maternity pay from nine to 12 months. Cabinet ministers have been asked to identify programmes that could be cut. But the government has delayed its Comprehensive Spending Review, which will contain all the really big decisions on departmental budgets, until after the election.

What have the opposition parties revealed about their plans?

The Tories have announced plans to scrap quangos such as the regional development agencies, ID cards and some IT projects, but they admit that this will barely make a dent in the £804bn national debt. Lib Dem Vince Cable has detailed £14bn in cuts, including plans to means-test child benefits and freeze public sector pay, but he may face opposition to his plans from his party. Lid Dem leader Nick Clegg has said £2bn could be cut through measures such as reductions in government departments, quangos and spin doctors.

Will anything be protected from cuts?

All parties say they want to protect "front-line" public services, and they are all keen to stress that health and education are priorities. The Tories have said the NHS and international aid budgets will continue to increase in real terms under them.

Why have politicians been so reluctant to talk about cuts until now?

Labour won three general elections on a platform of promising more money for public services - and warning against a return to "Tory cuts". David Cameron, after becoming Tory leader swiftly promised to stick to Labour's spending plans, a clean break with his electorally unsuccessful predecessors. Even now, with opinion polls suggesting the public believe spending cuts are needed, Labour are keen to portray the Conservatives as wanting to cut spending for ideological reasons, while Mr Cameron has repeatedly said his party is being forced to make cuts because of Labour's economic incompetence and are not "flint-faced accountants".

Are there any alternatives to spending cuts?

Yes. Tax rises and welfare cuts. The IFS says that if the government wants to avoid real cuts in departmental spending it would need to bring in tax increases or welfare cuts equivalent to 2.1% of national income, which adds up to £29bn or £930 per family per year in today's terms.

Is anyone planning tax increases?

Possibly. Labour has already brought in a new 50p tax rate for earnings over £150,000 and, having broken the New Labour taboo about putting up personal taxes ahead of an election, may be tempted to go further. The Conservatives say they are tax-cutters by nature but they have sparked anger from some of their own supporters by saying they will not be able to reverse Labour's increases straight away. There have been reports the Tories will increase VAT to 20% - something that has been firmly denied by the party. The Lib Dems say they will increase taxes on the well-off to pay for tax cuts for the poor. They have said they will leave the overall tax burden unchanged, although Vince Cable has hinted tax rises may be needed further down the line to help reduce the deficit.



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