Public must be told about ‘trade-offs inherent in ringfencing’ MPs warn
Commons Treasury select committee says more must be done to warn public about consequences of protecting public spending.
A central plank of George Osborne’s campaign to shore up public support for the government’s spending cuts, by protecting sensitive areas such as health and education, will be unsustainable if the public finances are to be brought under control, an influential group of MPs has warned.
As the chancellor is faced with a report ahead of the budget on 19 March suggesting there may be a new £20bn black hole in the public finances, the House of Commons Treasury select committee said more needed to be done to inform the public about the “trade-offs inherent in ringfencing”, which automatically puts the burden of cuts on other areas.
Economists have long harboured doubts about the decision of the coalition to protect key areas of public spending, forcing a higher burden of cuts on non-protected areas such as welfare and local government.
The prime minister has pledged that NHS spending will increase in line with inflation and the coalition has targeted resources at the school’s budget through the “pupil premium” aimed at children from disadvantaged backgrounds. The international development budget is protected because the coalition is committed to meeting the UN target of spending at least 0.7% of gross national income (GNI) on overseas aid from this year.
But Andrew Tyrie, the Conservative chairman of the cross-party Treasury select committee, said: “Around 43% of departmental expenditure limits are ringfenced. As a consequence, public expenditure control – on the scale required to address the deficit – will be increasingly difficult.
“Eventually ringfencing will have to be revisited, however difficult the politics of this may be for all parties.”
The committee rejected the idea that the British public were behind the government’s decision to ring-fence overseas aid funding. Tyrie said: “While ring-fencing reflects public priorities, those preferences are not equally strongly held for all ring-fenced areas. Support for the 33.5% cumulative real increase in aid over the course of this parliament, for example, appears to be lower than for health and schools.”
The committee was also highly critical of the chancellor’s Help to Buy scheme which allows buyers to take out an interest-free loan of up to 20% of a property’s value up to £600,000. The committee said: “The committee remains concerned about the impact of the government’s Help to Buy: mortgage guarantee scheme. An abrupt end to the scheme could distort the market, as could announcements which radically alter people’s expectations. The sooner that we have clarity about the terms for exit, the better.”
The report was published after the Financial Times reported that Osborne is facing a £20bn black hole in the public finances which means austerity may have to continue until 2020. Osborne is already committed to imposing £25bn in spending reductions between 2016-17 and 2017-18, which would include £12bn in welfare cuts.
The FT analysis of models by the Office for Budget Responsibility suggests Osborne will have to go even further. The chancellor, who will deliver the penultimate budget before the general election on 19 March, has said he will rely on spending cuts rather than tax increases to eliminate the remainder of the budget deficit. The FT’s research suggests that even greater cuts will have to be made to welfare, local government and police because other key areas of spending, such as the NHS and schools, are protected.