Sunday thoughts: What would a Truss government’s new Spending Review mean for education?
Hello. Fresh from being off on holiday for a couple of weeks while the country burst into flame (literally and metaphorically), I’ve been watching the emergent Tory leadership contest. I’m sure both my regular readers are pleased normal service on Sunday thoughts is resuming.
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Liz Truss’ team have told the Times that if elected, she will carry out a new spending review, “reflecting her altered priorities for government, among them a rise in defence spending from 2% to 3% of GDP by 2030”
The implications of this are hugely significant in both the short and the long term, and underrecognised at present. I was in a meeting with officials last week who were very aware of both candidates’ tax promises, but who had missed Truss’ promise on a new Spending Review, which she had already said in the early stages of the contest, and repeated today. If Truss is elected, there will be a lot of rapid work needed in Whitehall.
In the short term, Truss promises to make her estimated £30bn of tax cuts through a combination of headroom that has been generated by inflation (meaning higher cash tax receipts), and a reworking of the debt rules — specifically pushing Covid debt into longer term repayment, meaning she has more space for ‘normal’ borrowing. Even assuming that the numbers add up on the short term headroom, a nominal change to fiscal rules doesn’t mean you have more actual money — it’s just a balance sheet adjustment. Debt still needs to be paid, and lower tax revenue means spending cuts in the medium term. The defence commitment, assuming it’s a rise to 2.5% by the middle of this decade and then onto 3% by 2030, is about an £8-£10bn commitment a year by 2025, and then the same again in the back half of the decade.
Truss’ team’s answer is a Spending Review will “be with the aim of creating a slimmer, technologically enabled state” and “unlocking value from efficient management of government assets”, not spending cuts. So that’s ok then.
But let’s assume that the fifty eighth bonfire of the quangos in the last decade promised to the Telegraph doesn’t rustle up billions, and that (desirable) tech efficiencies don’t rustle up even more. That means a pressure on the public finances of tens of billions a year just from defence increases and ongoing cost pressures of other services, plus some diminution of the tax base.
What does a new Spending Review mean in the short and long term?
Spending Review last October (SR21, for those cool kids down with the Whitehall jargon) set out overall spending totals for the financial years 22/23, 23/24 and 24/25. Government spending runs April to April, so it was for budgets starting the Spring just gone. That means in theory the 23/24 and 24/25 years are both up for change (we’re halfway through the 22/23 financial year). But a lot of government spending has already been pre committed for the 23/24 financial year, because it includes the new school and university year about to start in September 2022.
Spending Reviews also take time to do — at least a year. I’m assuming that new Prime Minister Truss would announce one in her new Budget in Autumn 2022, not implement one — probably reporting at Autumn 2023. But she could announce this Autumn that the existing plans no longer apply beyond the end of the current financial year — that is, the 24/25 year would be scrapped, and government would make some immediate changes to spending for the 23/24 year.
In layman’s terms, then, I guess we would see:
- Some immediate short term cuts to public spending taking effect from April 2023
- A full SR kicking off, concluding in Autumn 2023 (SR23), with a brand new settlement for DfE, BEIS and other departments that would take effect from April 2024 and run through (nominally) to March 2027
Let’s take each of these in turn — and focus predominantly on DfE.
DfE will spend a shade under £72bn this year in revenue terms (so excluding capital spending, and excluding the treatment of student loans and most HE spending). It breaks down like this.
The vast majority, unsurprisingly (close to £69bn), is money that goes straight out of the door to schools, Academies, and FE colleges to fund annual spend per student. There’s a total of almost £7bn covering everything else, ranging from central DfE admin spend to programme spend on schools, FE and HE. (The numbers don’t sum because HE spend is counted as a negative spend in national accounts, for reasons I hazily understand and so skate over here).
So if DfE is asked for spending cuts starting in April 2023, it’s hard — though not impossible — to make cuts to that £69bn. That would mean a mid-year cut to the amount of money schools are allocated per pupil, and is probably undeliverable.
What would be in scope would be what is called programme spend — that is, little pots of money for particular programmes funded by DfE (sometimes through local government) and which would be planned to be spent from April 2023 through to April 2024. A list of possible programme spend lines is below — this is by no means comprehensive, but it’s easily identifiable lines of spending from reading the SR21 docs:
- Multiply scheme — worth an estimated £180m or so in 23/24
- Holiday Activities and Food programme — c£200m
- Start for Life (early years programme that funds Sure Start type centres and family hubs) — £170m a year
- Various ECF grants (funding NPQs and teacher training) — level of spend unclear
- National Skills Fund — about £180m a year
- Children’s social care improvement programmes — £100m a year
- Youth investment fund and NCS — about £180m a year
- PE and sports premium — £200m a year
- Various music and dance curriculum programmes — £100m
It would also be possible to change the trajectory of grants — for example the UK Shared Prosperity Fund is forecast to grow to about £1.5bn a year in 2024/25, and that growth could be flattened off in 23/24. Similarly, planned R+D spending grants could be tapered. This R+D cut is the big thing the scientific community are worried about.
It won’t escape anyone’s attention that even choosing from that that small list of grants would all come with potentially a lot of political pain to trim those (even if the educational impact for some of those cuts might be more negligble).
But the big game in town is what a whole new three year SR would do. Importantly, here, it needn’t be all bad news. A Truss government would be supportive of some things which DfE and BEIS could propose — most likely in service of economic growth. We could conceivably see an increase in R+D spend, even if via a rejigging of R+D tax credits. We could see the implementation of currently considered changes to the tax treatment of training (via the levy, or a new super deduction, or elsewhere). We could see capital funding for scientific and innovative projects which many universities are keen to see (and in all likelihood, if the levelling up frame disappears, universities in the Midlands and the South could come back into favour). The Lifelong Loan Entitlement and skills programmes would continue or grow. We could see Multiply being scrapped (as a Sunak scheme), and replaced with an almost identical scheme that supports maths for all to 18. I’ll be writing next week on how the education sector can and should be now moving rapidly to making their case in a new Spending Review.
But on the downside, out of favour areas could see a shrinkage. Core schools funding would probably stay reasonably flat, but wouldn’t increase (and I suspect the savings from falling primary rolls would be quietly snaffled, not redistributed). FE would probably see another cut. Early years and youth services are not in line for bonanzas under a Truss government.
A Spending Review planned to start for April 2024 would also have one big political purpose. If Truss went to the country in say March 2024, it would challenge Labour to either match the Truss government’s planned spending changes (and cuts overall), or to be faced with a ‘tax bombshell’ number throughout the election campaign of the cost of abandoning the planned cuts. Based on Starmer and Reeves’ positions to date, at pains to avoid unfunded commitments and project economic competence, I think that would cause some issues — and dissension within the Labour ranks as to how to respond.