This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.guardian.co.uk/politics/2013/jun/27/spending-review-osborne-coalition-harmony

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Spending review: how George Osborne quelled coalition dissent Spending review: how George Osborne quelled coalition dissent
(3 months later)
The spending review for 2015-16 will probably be seen as the political dog that did not bark, one of those rare moments in contemporary politics when the coalition actually coalesced.The spending review for 2015-16 will probably be seen as the political dog that did not bark, one of those rare moments in contemporary politics when the coalition actually coalesced.
Nearly £11.5bn has been struck off current public spending for 2015-16 – of which £3bn will be diverted to capital spending. Yet despite the best efforts of the shadow chancellor, Ed Balls, the worst mistake George Osborne is deemed to have made is to pose with a "posh boy" hamburger.Nearly £11.5bn has been struck off current public spending for 2015-16 – of which £3bn will be diverted to capital spending. Yet despite the best efforts of the shadow chancellor, Ed Balls, the worst mistake George Osborne is deemed to have made is to pose with a "posh boy" hamburger.
On the Today programme on Radio 4 on Thursday morning Balls found it hard to make his point that the whole spending review was the consequence of an austerity policy that had failed.On the Today programme on Radio 4 on Thursday morning Balls found it hard to make his point that the whole spending review was the consequence of an austerity policy that had failed.
Instead he was cornered over whether he supported benefits being delayed by seven days before new claimants can apply for payments, replacing the current three-day wait. The reform will save a trivial £250m a year and may well be rendered even more trivial by the introduction of universal credit, a benefit paid monthly, in arrears.Instead he was cornered over whether he supported benefits being delayed by seven days before new claimants can apply for payments, replacing the current three-day wait. The reform will save a trivial £250m a year and may well be rendered even more trivial by the introduction of universal credit, a benefit paid monthly, in arrears.
Judged purely as a piece of political management, Osborne deserves plaudits, as does his deputy, Danny Alexander, chief secretary to the Treasury.Judged purely as a piece of political management, Osborne deserves plaudits, as does his deputy, Danny Alexander, chief secretary to the Treasury.
But credit will also go to a less well-known figure – potentially the most powerful black woman in public life, Sharon White, the Treasury's director general of public spending.But credit will also go to a less well-known figure – potentially the most powerful black woman in public life, Sharon White, the Treasury's director general of public spending.
Ministers who have dealt with White praise her as a tough but impressive negotiator, on top of the numbers and Treasury thinking. One minister said: "Sharon is a highly intelligent, competent, official. But she was given the job from hell. But she was important and I had respect for her professionally. But she had the dirty job – to make the numbers add up."Ministers who have dealt with White praise her as a tough but impressive negotiator, on top of the numbers and Treasury thinking. One minister said: "Sharon is a highly intelligent, competent, official. But she was given the job from hell. But she was important and I had respect for her professionally. But she had the dirty job – to make the numbers add up."
While White is regarded as the key Treasury official, she was working within a political and economic framework agreed by ministers as far back as the early autumn. A Treasury plan for a three-year spending review was cut to a year after a revolt led by Vince Cable.While White is regarded as the key Treasury official, she was working within a political and economic framework agreed by ministers as far back as the early autumn. A Treasury plan for a three-year spending review was cut to a year after a revolt led by Vince Cable.
One Liberal Democrat said: "This whole debate started over a year ago. The idea was first mooted of having a three-year spending review and there was then a bit of a revolt among the Liberal Democrats. That would have committed the next government, whoever it is, to quite highly restrictive spending commitments well into the next parliament and we can't be bound by that. There was then a political understanding that they had to back off and we had one year.One Liberal Democrat said: "This whole debate started over a year ago. The idea was first mooted of having a three-year spending review and there was then a bit of a revolt among the Liberal Democrats. That would have committed the next government, whoever it is, to quite highly restrictive spending commitments well into the next parliament and we can't be bound by that. There was then a political understanding that they had to back off and we had one year.
"The parameters were set around about the time of the last autumn statement and there was quite a fierce row at the time. The parameters were wrong. There was too much public-spending cutting relative to tax. The ring fencing and going back to the same departments for cuts was potentially damaging. Perhaps, most of important of all, we should now start to think seriously about borrowing for capital spending rather than just financing modest increases in capital by cutting more to spend even more.""The parameters were set around about the time of the last autumn statement and there was quite a fierce row at the time. The parameters were wrong. There was too much public-spending cutting relative to tax. The ring fencing and going back to the same departments for cuts was potentially damaging. Perhaps, most of important of all, we should now start to think seriously about borrowing for capital spending rather than just financing modest increases in capital by cutting more to spend even more."
Once the review length was agreed, two key decisions in the run-up to the autumn statement shaped the entire process.Once the review length was agreed, two key decisions in the run-up to the autumn statement shaped the entire process.
In the first place the Liberal Democrats put a brake on further cuts in welfare spending – beyond the £3.6bn agreed last year, taking welfare cuts to a total of £22bn. In the second place, a decision was made in the run-up to the budget in March that plans for £8.5bn in current government spending cuts for 2015-16 would be extended to £11.5bn – with the extra £3bn going to capital spending.In the first place the Liberal Democrats put a brake on further cuts in welfare spending – beyond the £3.6bn agreed last year, taking welfare cuts to a total of £22bn. In the second place, a decision was made in the run-up to the budget in March that plans for £8.5bn in current government spending cuts for 2015-16 would be extended to £11.5bn – with the extra £3bn going to capital spending.
Alexander said of the cuts: "It was quite a difficult judgment but it was based on detailed knowledge and evidence that we thought departments could further than [the £8.5bn]. That judgment has been vindicated in what we were able to deliver."Alexander said of the cuts: "It was quite a difficult judgment but it was based on detailed knowledge and evidence that we thought departments could further than [the £8.5bn]. That judgment has been vindicated in what we were able to deliver."
He added: "We plan these things methodically from within the Treasury. We finally set the savings we needed in the budget but the framework had been set in the autumn statement. There have been a lot of conversations with departments so they have been planning for where they thought they could find savings.He added: "We plan these things methodically from within the Treasury. We finally set the savings we needed in the budget but the framework had been set in the autumn statement. There have been a lot of conversations with departments so they have been planning for where they thought they could find savings.
Just after the budget we gave the departments their planning assumptions. We gave them two to three weeks to come back with their initial offers and it was then a process of discussion and negotiation."Just after the budget we gave the departments their planning assumptions. We gave them two to three weeks to come back with their initial offers and it was then a process of discussion and negotiation."
He insisted there was no contradiction between the one-year overall spending review, outlined by Osborne on Wednesday, and his plans for capital spending stretching five years ahead.He insisted there was no contradiction between the one-year overall spending review, outlined by Osborne on Wednesday, and his plans for capital spending stretching five years ahead.
"We have a shared interest in setting out long-term infrastructure plans. What the private sector need to get investment going is long-term certainty.""We have a shared interest in setting out long-term infrastructure plans. What the private sector need to get investment going is long-term certainty."
The negotiations, which were driven by regular meetings of the "quad" of ministers – David Cameron, George Osborne, Nick Clegg and Danny Alexander – were more harmonious than previous negotiations. But there were bumps on two levels: institutional resistance from some departments and a determination from Cable, the business secretary, to ensure that his plans for growth were protected.The negotiations, which were driven by regular meetings of the "quad" of ministers – David Cameron, George Osborne, Nick Clegg and Danny Alexander – were more harmonious than previous negotiations. But there were bumps on two levels: institutional resistance from some departments and a determination from Cable, the business secretary, to ensure that his plans for growth were protected.
One Treasury source said: "The quality of responses from departments varied enormously. Some were very good, some just did not engage at all."One Treasury source said: "The quality of responses from departments varied enormously. Some were very good, some just did not engage at all."
The best performers, in the Treasury's eyes, were the Ministry of Justice and the Department for Communities and Local Government. This prompted Osborne to joke that the portly communities secretary, Eric Pickles, was a fine example of lean government.The best performers, in the Treasury's eyes, were the Ministry of Justice and the Department for Communities and Local Government. This prompted Osborne to joke that the portly communities secretary, Eric Pickles, was a fine example of lean government.
The "latecomers" were the environment department and the Department of Energy and Climate Change .The "latecomers" were the environment department and the Department of Energy and Climate Change .
The education department, which had the schools budget protected and the rest cut by 5%, was also a late negotiator. But this was blamed on a need for the Treasury to settle what was described as intra-departmental tensions between Michael Gove and David Laws, who have different spending priorities. "It was a good coalition compromise in the end," one Treasury source said diplomatically.The education department, which had the schools budget protected and the rest cut by 5%, was also a late negotiator. But this was blamed on a need for the Treasury to settle what was described as intra-departmental tensions between Michael Gove and David Laws, who have different spending priorities. "It was a good coalition compromise in the end," one Treasury source said diplomatically.
The so-called National Union of Ministers – Theresa May, Philip Hammond and Cable, who supposedly joined forces to protect their budgets by arguing against the ringfencing of other budgets – was an important force, according to one member, although the group acted less as a cabal than as a collection of like-minded thinkers.The so-called National Union of Ministers – Theresa May, Philip Hammond and Cable, who supposedly joined forces to protect their budgets by arguing against the ringfencing of other budgets – was an important force, according to one member, although the group acted less as a cabal than as a collection of like-minded thinkers.
One minister said: "It existed in the virtual world. We didn't gather together in dark corners and sip beer and plan the next strike. But it was defining a group of ministers who were dissatisfied with the overall framework from different points of view."One minister said: "It existed in the virtual world. We didn't gather together in dark corners and sip beer and plan the next strike. But it was defining a group of ministers who were dissatisfied with the overall framework from different points of view."
But not everybody is sure about the supposed impact of the "NUM". One Treasury source disagreed: "There was a lot of fiction around the NUM. There was much less noise around this spending review."But not everybody is sure about the supposed impact of the "NUM". One Treasury source disagreed: "There was a lot of fiction around the NUM. There was much less noise around this spending review."
The Treasury indicated that it had no difficulty with May and Hammond. The latter, the defence secretary, made clear that the strategic defence and security review could not be reopened and that the long-term nature of defence procurement meant his budget had to be managed with care. He got a 1% increase in the defence equipment budget and a 5% cut in the rest of his budget – with no more cuts in armed forces personnel – after allowing the cabinet secretary, Jeremy Heywood, to lead a review of back-office costs.The Treasury indicated that it had no difficulty with May and Hammond. The latter, the defence secretary, made clear that the strategic defence and security review could not be reopened and that the long-term nature of defence procurement meant his budget had to be managed with care. He got a 1% increase in the defence equipment budget and a 5% cut in the rest of his budget – with no more cuts in armed forces personnel – after allowing the cabinet secretary, Jeremy Heywood, to lead a review of back-office costs.
Hammond told the House Magazine: "There are no secrets here any more. That's one of the big changes since 2010, that the Treasury spending team walks in here, it's open book. They can see all our numbers, they understand exactly what's going on in our business, and that's hugely improved our working relationship."Hammond told the House Magazine: "There are no secrets here any more. That's one of the big changes since 2010, that the Treasury spending team walks in here, it's open book. They can see all our numbers, they understand exactly what's going on in our business, and that's hugely improved our working relationship."
Alexander said the efficiency reform group, led by the Cabinet Office minister, Francis Maude, had been "worth its weight in gold".Alexander said the efficiency reform group, led by the Cabinet Office minister, Francis Maude, had been "worth its weight in gold".
He said: "It made a huge difference to have commercial experts in the negotiations to tell a secretary of state 'we think you can find more efficiency from your central department, you don't have to cut this and you don't have to cut that'. To have someone there who says 'we have looked at all your contracts and we can renegotiate them and find 10% or 20% savings'. It is a much better way to make savings to renegotiate a contract than it is to close a facility.He said: "It made a huge difference to have commercial experts in the negotiations to tell a secretary of state 'we think you can find more efficiency from your central department, you don't have to cut this and you don't have to cut that'. To have someone there who says 'we have looked at all your contracts and we can renegotiate them and find 10% or 20% savings'. It is a much better way to make savings to renegotiate a contract than it is to close a facility.
"We are going to be running a rolling programme of department-by-department efficiency reviews. It is not just that it helped us find the £11.5bn in the right way – it also revealed a whole lot of potential new opportunities for finding savings.""We are going to be running a rolling programme of department-by-department efficiency reviews. It is not just that it helped us find the £11.5bn in the right way – it also revealed a whole lot of potential new opportunities for finding savings."
The Treasury had identified Cable as potentially the most difficult negotiator but played down tensions because Osborne had agreed with one of his main aims – protection of the science budget. Osborne devolved responsibility for negotiating with Cable to Alexander. But Cable, who settled late, made clear to friends that he had to fight hard to see off some "horrid" Treasury ideas about six weeks ago.The Treasury had identified Cable as potentially the most difficult negotiator but played down tensions because Osborne had agreed with one of his main aims – protection of the science budget. Osborne devolved responsibility for negotiating with Cable to Alexander. But Cable, who settled late, made clear to friends that he had to fight hard to see off some "horrid" Treasury ideas about six weeks ago.
One source said: "It was a real list of horrors. They were looking for £2bn cuts [close to 10% cuts on the Treasury baseline]. There was a paper circulating from the Treasury that wanted all [further education] provision put on to a loan basis.One source said: "It was a real list of horrors. They were looking for £2bn cuts [close to 10% cuts on the Treasury baseline]. There was a paper circulating from the Treasury that wanted all [further education] provision put on to a loan basis.
"Even people with little more than GCSEs would be put on to student loans. It would have been massive cuts in the FE budget. They were wanting, in some places, to get rid of student grants and convert them all into loans. Reopening the question of the student loans scheme – dropping the threshold to £18,000 was one of the proposals flying around."Even people with little more than GCSEs would be put on to student loans. It would have been massive cuts in the FE budget. They were wanting, in some places, to get rid of student grants and convert them all into loans. Reopening the question of the student loans scheme – dropping the threshold to £18,000 was one of the proposals flying around.
"To some extent this is a negotiating process and we didn't expect to finish up there. But that was the initial wish list.""To some extent this is a negotiating process and we didn't expect to finish up there. But that was the initial wish list."
Cable had what was described as a "personal, friendly" chat with Alexander, who offered assurances that the Treasury would not be that fierce. This prompted the business department to propose current spending cuts of a quarter of the level demanded by the Treasury, and extra capital spending.Cable had what was described as a "personal, friendly" chat with Alexander, who offered assurances that the Treasury would not be that fierce. This prompted the business department to propose current spending cuts of a quarter of the level demanded by the Treasury, and extra capital spending.
One minister said: "This created quite serious waves in the Treasury. There was then quite a fierce argument about how to reconcile these different positions.One minister said: "This created quite serious waves in the Treasury. There was then quite a fierce argument about how to reconcile these different positions.
"A week before the end the business department came up with a revised proposal that involved more cuts but nothing desperate – and a request for a lot more capital, including the Green Investment Bank, the regional growth fund, lots more university building – science facilities. It was obvious the two positions could not be reconciled. There was a kind of standoff.""A week before the end the business department came up with a revised proposal that involved more cuts but nothing desperate – and a request for a lot more capital, including the Green Investment Bank, the regional growth fund, lots more university building – science facilities. It was obvious the two positions could not be reconciled. There was a kind of standoff."
But the minister said that eventually a final agreement came together quickly when "last weekend the business department proposals were accepted with a little bit extra".But the minister said that eventually a final agreement came together quickly when "last weekend the business department proposals were accepted with a little bit extra".
The minister added: "The settlement was at just under a 5% cut. The Treasury have subsequently massaged it to make it look bigger. There was a big increase in capital, when you add in the Green Investment Bank it is a 70% increase. It is generally a very good story. Apprenticeships have been protected, the science budget is ring-fenced again, there is a lot more money for the technology strategy board. There are a few painful and difficult things. But it is a reasonably satisfactory outcome."The minister added: "The settlement was at just under a 5% cut. The Treasury have subsequently massaged it to make it look bigger. There was a big increase in capital, when you add in the Green Investment Bank it is a 70% increase. It is generally a very good story. Apprenticeships have been protected, the science budget is ring-fenced again, there is a lot more money for the technology strategy board. There are a few painful and difficult things. But it is a reasonably satisfactory outcome."
Cable devised what was described as a "crucial" strategy to resist the classic Treasury tactic of setting departmental current spending budgets before laying down the capital budget. "It is not conspiracy theory. It is just the Treasury have a very mechanical way of doing things. They just say we will agree with your [resource departmental spending limits] settlement and you get something that is satisfactory to us we will then talk about capital and they then allocate capital, they don't negotiate it. [It was made] very clear that wasn't going to happen and they would have to negotiate properly."Cable devised what was described as a "crucial" strategy to resist the classic Treasury tactic of setting departmental current spending budgets before laying down the capital budget. "It is not conspiracy theory. It is just the Treasury have a very mechanical way of doing things. They just say we will agree with your [resource departmental spending limits] settlement and you get something that is satisfactory to us we will then talk about capital and they then allocate capital, they don't negotiate it. [It was made] very clear that wasn't going to happen and they would have to negotiate properly."
All sides say that Cable worked well with his Tory ministers two of whom, Matt Hancock and Michael Fallon, are close allies of Osborne.All sides say that Cable worked well with his Tory ministers two of whom, Matt Hancock and Michael Fallon, are close allies of Osborne.
One source said of the idea that they were sent in as Osborne spies: "That's a myth. Matthew Hancock is very committed to apprenticeship training, he didn't want Vince to give ground in that area."One source said of the idea that they were sent in as Osborne spies: "That's a myth. Matthew Hancock is very committed to apprenticeship training, he didn't want Vince to give ground in that area."
Alexander worked last autumn with the Treasury spending teams, which shadow individual departments, on where savings could be made and on reforms to bring in further savings. He also held a series of roundtable meetings with outside bodies which helped finalise reforms such as bringing together health and social care.Alexander worked last autumn with the Treasury spending teams, which shadow individual departments, on where savings could be made and on reforms to bring in further savings. He also held a series of roundtable meetings with outside bodies which helped finalise reforms such as bringing together health and social care.
A meeting with chief constables helped bring together the criminal justice reforms. The troubled families programme was helped by a meeting in February with local authority leaders to discuss community budgeting.A meeting with chief constables helped bring together the criminal justice reforms. The troubled families programme was helped by a meeting in February with local authority leaders to discuss community budgeting.
Alexander said: "The Treasury levers on these things are pretty powerful but fairly blunt in terms of financial incentives. So we spent a lot of time planning out how we could use those. Those reforms help create and justify savings."Alexander said: "The Treasury levers on these things are pretty powerful but fairly blunt in terms of financial incentives. So we spent a lot of time planning out how we could use those. Those reforms help create and justify savings."
One area acutely sensitive for the Lib Dems was the welfare reforms outlined by Osborne, which were drawn up by Neil O'Brien, former director of the Cameron thinktank the Policy Exchange. Alexander said the reforms were consistent with the Lib Dem pledge not to make further welfare cuts. "We have not made any more net savings from the welfare system. What we have done here is something we all agree about – reinvesting more resources in helping people get off benefits and into work more quickly. All the things we are putting money into are things that make a difference in terms of getting people into work more quickly."One area acutely sensitive for the Lib Dems was the welfare reforms outlined by Osborne, which were drawn up by Neil O'Brien, former director of the Cameron thinktank the Policy Exchange. Alexander said the reforms were consistent with the Lib Dem pledge not to make further welfare cuts. "We have not made any more net savings from the welfare system. What we have done here is something we all agree about – reinvesting more resources in helping people get off benefits and into work more quickly. All the things we are putting money into are things that make a difference in terms of getting people into work more quickly."
But the Tories see the welfare reforms as crucial in an area popular with voters and where they hope to make further cuts if they win the election.But the Tories see the welfare reforms as crucial in an area popular with voters and where they hope to make further cuts if they win the election.
"Reform needs to continue," one source said. "This is a massive unreformed part of the state. The Labour party is all over the place and is highly contradictory. They talk about iron discipline but then oppose cuts. Their heart is not in it. They do not believe their own message.""Reform needs to continue," one source said. "This is a massive unreformed part of the state. The Labour party is all over the place and is highly contradictory. They talk about iron discipline but then oppose cuts. Their heart is not in it. They do not believe their own message."
The negotiations were some of the most harmonious in the history of the coalition after both sides were badly burnt by the experience of the "omnishambles" budget of 2012 which prompted warnings from Osborne about the dangers of leaks.The negotiations were some of the most harmonious in the history of the coalition after both sides were badly burnt by the experience of the "omnishambles" budget of 2012 which prompted warnings from Osborne about the dangers of leaks.
It is understood that Cable still has concerns about the lack of imagination in the Treasury over relaxing borrowing to prompt house building.It is understood that Cable still has concerns about the lack of imagination in the Treasury over relaxing borrowing to prompt house building.
One source said: "On the Lib Dem side Don Foster is quite creative in coming with ideas as to how you could get councils to build more houses without breaching too much the borrowing targets. But the Tories are quite adamant they don't want this. We have reached an impasse with them."One source said: "On the Lib Dem side Don Foster is quite creative in coming with ideas as to how you could get councils to build more houses without breaching too much the borrowing targets. But the Tories are quite adamant they don't want this. We have reached an impasse with them."
As the battle lines are drawn up for the election, the Treasury brains behind this week's announcements will have a two and half year wait for the next spending review. But while White will be busy developing the rolling savings programmes, progress will be monitored by her husband, Robert Chote, director of the Office for Budget Responsibility, the Treasury's independent watchdog. "I teased Robert about having fights with his wife," one minister says.As the battle lines are drawn up for the election, the Treasury brains behind this week's announcements will have a two and half year wait for the next spending review. But while White will be busy developing the rolling savings programmes, progress will be monitored by her husband, Robert Chote, director of the Office for Budget Responsibility, the Treasury's independent watchdog. "I teased Robert about having fights with his wife," one minister says.
Will there be more to come?Will there be more to come?
Our editors' picks for the day's top news and commentary delivered to your inbox each morning.