17 Oct 2010

Spending cuts target child benefits, tax credits and social housing

The deal is done.

The most extensive programme of government cuts since the 1920s was signed off at Chequers today by the ‘quad’ – that is the PM, Chancellor, Deputy PM and the Chief Secretary.

Here are some of the headlines:

Massive cuts to welfare. The Chancellor talked last month about £4bn extra, in addition to the £11bn announced at the Budget. That £4bn is now ‘markedly’ larger, with one government insider suggesting ‘seven or eight billion’.

Expect a restriction on the age to child benefit to 16-years-old, though slightly mitigated in some way.

Expect the tax credit system to be fundamentally reduced in scope and generosity. These savings can not and will not be just about targeting middle class welfare. The poor will be hit.

In theory that should allow the average cut in non protected departments to come closer to 21-22 per cent than the 25 per cent announced at the June Budget.

Happy days? Well not at all.

Some sub-departments at the Communities Department, and Vince Cable’s Business department face basic decimation. Government insiders have confirmed that the rough magnitude of cuts to the £8.4bn social housing budget, and the £3.9bn university teaching grant will be 60-80 per cent.

This will, say housing associations, collapse house building in Britain, even further.

Social landlords put in 60 per cent (to the taxpayers 40 per cent) of the funding for almost half (50,000) of the 113,000 homes built in the UK last year. Insiders suggest that will fall to hundreds.

The reason why? Firstly a whole load of spending has been politically prioritised and ring-fenced, raising the burden on non-protected areas to almost absurd levels. Second, the Chancellor’s strategy has been to deploy his limited jam in targeted dollops, not spreading it equally meagrely everywhere.

To that end, and this is the third point, the Treasury has put together a remarkable mathematical spreadsheet to try to numerically rank all capital investment spending in Britain, on the basis of contribution to economic growth.

Social housing did not score highly on this spreadsheet. Rail scored highly, as did the Mersey Gateway suspension bridge between Runcorn and Widnes and the Diamond Synchrotron in Oxfordshire.

So there you have it. A remarkable programme. And one which will shape Britain for the next half-decade.