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Quick Guide to the Spending Review

Overview
The Chancellor announced that cuts to public spending totalling £81bn over the next four years to achieve their target of eliminating the structural deficit by 2015. On average government departments' budgets have been reduced by 19% (less than the 25% that had been expected), making the cuts the biggest seen since 1973. However there is significant variation across budgets, ranging from a 51% cut at Communities and Local Government to an increase of 37% for international aid. Cuts of £7bn to the welfare budget were announced, on top of the £11bn announced in the emergency Budget in June.

The retirement age will rise to 66 from 2020, six years earlier than previously planned. And the government expects almost 500,000 jobs will be lost in the public sector as a result of the Spending Review. The impact of the cuts, according to the Treasury's figures, will affect the poorest 10% of households more than any other group apart from the richest 10% of the population.

Voluntary and Community Sector
The Spending Review committed £470m to support capacity building in the voluntary and community sector (VCS), including a new £100m Transition Fund to provide support for organisations to deliver (or prepare to deliver) public services. Beyond the £100m for the Transition Fund, it is not yet clear precisely how the £470m will be allocated. The Spending Review says the government will ‘direct' the money, leading to speculation over whether this figure includes unclaimed funds held in banks that will be used to establish the Big Society Bank.

The Transition Fund will provide short-term funding, until March 2012, and Minister for Civil Society, Nick Hurd, is reported in Third Sector magazine as saying it will go to organisations with incomes between £50,000 and £10m, with £10m in the current (financial) year and £90m in 2011-12.

The government has also announced funding to pilot the National Citizen Service for 16 year olds and confirmed that the Big Society Bank will go ahead with all the available from dormant accounts. Funding will also go into an endowment fund to support local voluntary and community groups and the government pledged to work with financial services sector to develop investment opportunities for the VCS. Part of the funding is also expected to go into the proposed ‘Communities First' grants programme, to support small local community groups (along the lines of the previous Grassroots Grants scheme). Other details of how the funding will be allocated are yet to be confirmed.


Communities and Local Government (CLG)
Within the large cuts to CLG's budget - which will see the department's spending reduced by 33% and capital spending by 74% (resulting in an overall reduction of 51%) - local authorities will see their funding reduced by nearly £7bn. A 7% reduction each year (from April 2011) to local authority funding, means an overall reduction of around 25% over four years. However councils will be given more freedom over the money they do have, with restrictions being removed over how their grant is spent, as well £1.5bn of CLG funding being devolved to local authorities. Councils will also be given greater freedom to use their assets to borrow against.

£200m will be made available during 2011-12 to support councils to reform local services and where local authorities freeze their council tax, CLG will provide 2.5% to compensate them for this loss of income. There was also £1bn for local authorities to support social care (with a further £1bn going to the health service also for social care). The budget for the Regional Growth Fund is raised from £1bn to £1.4bn, to support economic development and enterprise growth.
Building on the Total Place pilots , from April 2011 16 areas will trial ‘community budgets', where all the funding in an area can be pooled to be provided more joined up support for families with ‘complex needs'. This approach is expected to be open to all areas by 2013-14.


Housing
Funding for social housing is being cut by more than 60%, and new tenants will have to pay significantly higher rents - up to 80% of private sector rents - though these changes will not affect existing tenants. From the money this saves, the government hopes to fund the building of 150,000 new affordable homes over the next four years. The budget for Supporting People will be £1.5bn per year, which is down only slightly from the current £1.6bn level.


Welfare reform
With £18bn of cuts being made (including the £11bn announced in the budget), numerous significant changes are planned. Public sector pension reform, with greater employee contributions, will save £1.8bn and accelerating the raising of the retirement age will save a further £5bn. Child Benefit will not be paid to households with a higher income taxpayer, saving £2.5bn - which is a full £1bn more than was anticipated in June's emergency budget.

The new employment and support allowance will be limited to a year and a cap on the amount of housing benefit that will be paid are to be introduced, as well as a 10% cut to the council tax benefit budget. In line with the government's pledge to ensure that ‘work always pays', no workless family will be able to receive more in welfare than the average income for working households. However winter fuel allowance, free bus passes and TV licences for 75-year-olds are all protected and the child element of tax credits will rise by £30 next year.


Other areas
• Energy and Climate Change departmental spending is to be reduced by 18%, but there will be £1bn for a new Green Investment Bank and £200m invested in wind turbines.
• Prison places are to be reduced by 3,000 and plans for a new prison have been scrapped. Overall the Ministry of Justice's budget will fall by 23%.
• Police funding is to be reduced by 4% each year (14% overall), but the government say they aim not to reduce the ‘visibility' of officers.
• A permanent tax on banks (based on their size and profitability) will be introduced from April and is expected to raise more than the £2.5bn one-off ‘bankers bonuses tax' that the previous government introduced.
• There will be funding for 75,000 adult apprenticeships, an increase of £250m a year by 2014-15.
• The limit on how much train fares can go up by is lifted, meaning costs can now rise by 3% more than inflation from 2012.


Further information
The full Spending Review report and other documents can be found here: www.hm-treasury.gov.uk/spend_index.htm

The BBC has information on what the spending review means for each government department: www.bbc.co.uk/news/uk-politics-10924719

You can also read Urban Forum's initial reaction to the Spending Review here: www.urbanforum.org.uk/whitehall-watch-blog/reaction-to-the-spending-review  

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Thursday, 21 October 2010
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