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Chancellor unveils £4.5bn extra savings including Royal Mail stake sell-off Chancellor unveils £4.5bn extra savings including Royal Mail stake sell-off
(about 4 hours later)
George Osborne has taken an early swipe at departmental budgets announcing £4.5bn of savings in this financial year through a sell-off of national assets – including the remaining stake in Royal Mail – and spending cuts. George Osborne has taken an early swipe at departmental budgets, announcing £4.5bn of savings this year through a sell-off of national assets – including the remaining stake in Royal Mail – and spending cuts.
Departments have been ordered to find £3bn in savings, and the chancellor says he will also raise £1.5bn from the sale of the government’s remaining 30% stake in Royal Mail. Government departments have been ordered to find £3bn in savings this year, and the chancellor says he will also raise £1.5bn from the sale of the government’s 30% stake in Royal Mail.
The cuts are in addition to the £13bn of cuts already announced for 2015-16 and the £30bn of cuts Osborne is due to announce in the emergency budget on 8 July for the following two years.
The announcement prompted an immediate warning from the Institute for Fiscal Studies. Carl Emmerson, its deputy director, said: “The risk of doing quick cuts is that departments cut what they can, which isn’t necessarily what they should.”
Related: George Osborne's £4.5bn savings plan: what's being cut?Related: George Osborne's £4.5bn savings plan: what's being cut?
He pointed out that asset sales – which make up almost £2bn of Osborne’s planned £4.5bn in savings – make no long-term difference to the deficit, because they only generate a one-off windfall. The cuts are in addition to the £13bn already announced for 2015-16 and the £30bn of cuts the chancellor is due to announce in the emergency budget on 8 July for the following two years.
The announcement prompted an immediate warning from the Institute for Fiscal Studies. Carl Emmerson, its deputy director, said: “The risk of doing quick cuts is that departments cut what they can, which isn’t necessarily what they should.”
He also pointed out that asset sales – which make up almost £2bn of Osborne’s planned £4.5bn in savings – make no long-term difference to the deficit because they only generate a one-off windfall.
“We have a large deficit, and to reduce a deficit you need spending cuts or tax rises, so asset sales are not really helping,” he said.“We have a large deficit, and to reduce a deficit you need spending cuts or tax rises, so asset sales are not really helping,” he said.
Osborne told MPs that the government had to act now to bring the deficit under control, but the shadow chancellor, Chris Leslie, accused the Treasury of panic and failing to provide full details to MPs. But Osborne told MPs that the government had to act now to bring the deficit under control. The shadow chancellor, Chris Leslie, accused the Treasury of panic and failing to provide full details to MPs.
Osborne made the announcement during the Commons debate on the economy. Related: Relinquishing last Royal Mail shares must be done at highest price possible
The government sold a 70% stake of Royal Mail in October 2013 at a rate of 330p and shares are currently trading at 526p a share. The £3bn departmental savings Osborne announced are all focused on Whitehall departments outside the protected areas such as the NHS, schools and overseas aid – the equivalent of around 3% of unprotected departmental spending this year.
The £3bn savings Osborne announced will be focused on Whitehall departments outside the protected areas such as the NHS, schools and aid – the equivalent of around 3% of unprotected departmental spending this year. If Whitehall achieves the new savings targets of about 3% on unprotected departments the IFS believes Osborne will have another 12% left to find from those areas over the next three years, instead of its previous estimate of 15%.
Osborne tried to minimise the impact of the cuts by saying it was expected that departments would be tightly managed so that instead of spending up to budget, departments deliver underspends. Departments across Whitehall including the Ministry of Defence, the Department for Education and the Department for Business, Innovation and Skills have agreed targets with the Treasury to deliver.Osborne tried to minimise the impact of the cuts by saying it was expected that departments would be tightly managed so that instead of spending up to budget, departments deliver underspends. Departments across Whitehall including the Ministry of Defence, the Department for Education and the Department for Business, Innovation and Skills have agreed targets with the Treasury to deliver.
The largest savings are to come in the Department for Transport with savings of £545m including the sale of land around King’s Cross. Defence is expected to provide a further £500m, but the Treasury insisted the cuts did not mean the MoD spend would fall below 2% of GDP, the Nato target. The largest savings are to come in the Department for Transport with savings of £545m including the sale of land around King’s Cross. Defence is expected to provide a further £500m, but the Treasury insisted the cuts did not mean the MoD spend this year would fall below the politically sensitive 2% of GDP, the Nato target.
An MOD spokesman said the £500m amounted to 1.5% of the overall defence budget. He said: “This agreement will not impact on the baseline defence budget, manpower numbers or current operations. The UK will continue to spend 2% of GDP on defence in this financial year.”An MOD spokesman said the £500m amounted to 1.5% of the overall defence budget. He said: “This agreement will not impact on the baseline defence budget, manpower numbers or current operations. The UK will continue to spend 2% of GDP on defence in this financial year.”
The non-schools part of the DfE is due to find £450m, as is the BIS with the savings focused on higher education and further education. The non-schools part of the DfE is due to find £450m. In BIS the savings focused on higher education and further education.
The already hard-pressed Ministry of Justice is cutting a further £250m, and local government is to lose £200m as a result of a failure to spend an equivalent sum last year provided by the Department of Health for public health.
Osborne said he was getting on with what he promised – reducing the deficit – adding that this is how you deliver lasting economic security for working people. “As everyone knows, when it comes to living within your means, the sooner you start the smoother the ride,” he said.
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Defending the sale of the remaining stake in Royal Mail the chancellor said: “That business is now thriving after we gave it access to investment from the private sector in the last parliament. The already hard-pressed Ministry of Justice is cutting a further £250m, and local government is to lose £200m as a result of a failure to spend an equivalent sum last year provided by the Department of Health for public health, now a local government responsibility.
“There is no reason we should continue to hold a minority stake. That stake is worth around £1.5bn at current market prices. Of course, share prices fluctuate. The final value will depend on market conditions at the point of sale. David Sparks, chair of the Local Government Association, said: “ Councils already have to find savings of £2.5bn before April after receiving 8.5% less funding from government to run local services in 2015-16. These savings were already going to be the most difficult yet.
“We will only sell our stake when we can be sure we’re getting value for money but let’s be clear: holding over £1bn of Royal Mail shares in public hands is not a sensible use of taxpayers’ money. By selling it, we help that important national business to prosper and invest in the future while we use the money we get to pay down the national debt and pay less interest on that debt as a result. A £200m reduction in public health funding will clearly have some impact on councils’ ability to improve the public’s health and wellbeing and reduce demand for hospital, health and social care services.
“It’s a double win for the taxpayer, for we on this side never forget that it is not our money or the government’s money; it’s the money people work for and pay in taxes and entrust in us to spend wisely.” Osborne said he was getting on with what he promised – reducing the deficit – adding that this is how you deliver lasting economic security for working people. “As everyone knows, when it comes to living within your means, the sooner you start the smoother the ride,” he said.
Emmerson said that while privatisations might be sensible for other reasons, such as the belief that the private sector can run things better, the government loses an asset as well as gaining some cash, so “it does reduce cash debt, but you’re not really improving the indebtedness of the country”. Defending the sale of the remaining stake in Royal Mail, the chancellor said: “That business is now thriving after we gave it access to investment from the private sector in the last parliament. There is no reason we should continue to hold a minority stake. That stake is worth around £1.5bn at current market prices. Of course, share prices fluctuate. The final value will depend on market conditions at the point of sale.
If Whitehall achieves the new savings targets of about 3% on unprotected departments, the IFS believes Osborne will have another 12% left to find from unprotected departments over the next three years, instead of the IFS’s previous estimate of 15%. “We will only sell our stake when we can be sure we’re getting value for money, but let’s be clear: holding over £1bn of Royal Mail shares in public hands is not a sensible use of taxpayers’ money.”
Brian Scott, the Unite officer representing Royal Mail managers, said: “This fire sale by the chancellor will shortchange taxpayers and deny the Treasury of a steady stream of income over the long-term.”
Emmerson said that while privatisations might be sensible for other reasons, such as the belief that the private sector can run things better, the government loses an asset as well as gaining some cash, so “it does reduce cash debt but you’re not really improving the indebtedness of the country”.
Osborne’s unexpected announcement came after the IFS had accused the government of misleading the public about the scale of the cuts to come. Emmerson told a press conference in London that David Cameron’s characterisation of the government’s planned cuts as saving £1 of every £100 the government spends “seriously underestimates the size of the challenge we face”.