Public spending hit in grim Budget

Chancellor George Osborne has confirmed that lower public spending will form the bulk of the government’s action to reduce Britain’s budget deficit.

Speaking in an emergency Budget to the House of Commons this lunchtime, Osborne said a reduction in public spending would account for 77% of its action to eradicate the deficit within five years, while tax increases would account for 23%.

Osborne’s plans assume that growth will be just 1.2% next year, but up to 2.8% in 2012-13, with unemployment peaking at 8.1%. If his predictions pan out, he said his “unavoidable” Budget would both “pay for the past and prepare for the future.”

Speaking to a packed Commons, Osborne confirmed that the NHS will receive “real terms increases in its funding” over the lifetime of the Parliament and that spending on international development will be maintained.

This will leave other government departments facing massive cuts to their budgets of 25% on average over the next four years; although Osborne indicated that he is still looking for further reductions in welfare spending that may soften the blow for some departments.

Although the NHS was not hit directly in the Budget, many of its arms length bodies, contracts and programmes have already come under review or been curtailed.

In addition to the £6 billion cuts announced earlier in the year, a new hospital for Hartlepool and North Tees was axed this week, as part of a package of cuts to ‘unfunded’ programmes that also saw the end of free swimming for pensioners and children.

In the Budget, Osborne announced cuts to public and child health programmes as part of his plans to cut welfare spending by £11 billion by 2014-15.

The £150 grant made to pregnant mothers to improve their diet will be axed, and Sure Start maternity payments restricted to one child. Child benefit will be frozen for three years.

Health secretary Andrew Lansley has also been warning that the while the NHS will receive above inflation increases in its funding, these will not cover the cost of ‘medical inflation’ or the increased demand generated by an ageing population living with a bigger burden of chronic disease.

At last year’s NHS Confederation conference, NHS chief executive David Nicholson said this might require efficiency savings of £20 billion over the next four years. At this year’s conference, Lansley is expected to indicate that more may be required.

This week, the Department of Health revised the Operating Framework for the NHS 2010-11 and called for massive savings in management costs, while scrapping some key targets in favour of publishing more performance management information for GP commissioners and patients.

In the Budget, Osborne said that the pay of top civil servants will be capped at 20 times that of public sector workers.

Ordinary public sector employees will be expected to accept a two year pay-freeze, although Osborne said that those earning less than £21,000 a year would be “protected” with a flat rate, £250 pay rise in each of the next two years.

How much of the money they see will depend on the impact of the mix of complex changes to tax thresholds, national insurance, council tax payments and VAT that Osborne outlined. VAT will rise from 17.5% to 20%.

However, he insisted that “everybody” would share in action to tackle the deficit and that “prosperity for all” remained the government’s aim.