Sunday, 25 March 2012

A Budget for education

by Mark Corney

At first glance, Budget 2012 looks like a non-event for education and skills.

Apart from piloting enterprise loans for young people and an extra £100m for science facilities, the conclusion could so easily be drawn that this is not a budget for education and skills.

But this is a budget where the story lies in the ‘big picture’ rather than specific measures.

To appreciate how important this budget is for education and skills, time has to be spent on grappling with the difference between annually managed expenditure (AME) and departmental expenditure limits (DEL). 

AME is revenue and capital expenditure which fluctuates with the economic cycle and difficult to plan over a three year period. Examples include debt interest and welfare spending, with the latter covering pensions, child benefit, child tax credits and social security spending.

By comparison, DEL is revenue and capital expenditure which can be managed over three years. It covers spending by all the departments of state in the UK including health and education.

The present spending review period extends to 2014/15. During that period, overall revenue spending is planned to fall by 0.8% in real terms per year. But this hides the fact that AME will increase by 2.1% but DEL will fall by 2.3%.

In other words, to keep a lid on public borrowing the Coalition is having to cut departmental spending across Whitehall to pay for rising social security expenditure – including Jobseekers Allowance, incapacity benefits and tax credits – and debt interest.

To maintain its triple ‘A’ rating, the Chancellor has already announced the overall total for public spending for 2015/16 and 2016/17 which is set to fall in real terms by 0.9% per year. But no decisions have been taken on the share of the cuts between AME and DEL and, in turn, the cuts between different government departments.

These decisions will be made in the next Spending Review, the date of which has yet to be announced but publication in July 2014 is a good bet.

Even so, Budget 2012 prepares the ground for intense debate on public spending up to 2016/17.

On its present path, AME is set to increase by 1.8% in real terms per year between 2015/16 and 2016/17. To meet the targets for overall public spending, DEL expenditure would have to fall by 3.8%, far higher than the average real term cut of 2.3% between 2011/12 to 2014/15.

In money terms, AME would have to be cut by £10bn without further cuts to departmental DELs. Or put another way, another £10bn might have to be cut from welfare budgets to protect departmental spending.

Given these stark choices, the Red Book* states “The government will be examining the cost drivers for all areas of public spending, and identify the further reforms needed to deliver a sustainable welfare system and public services within the resources available.”

It is a brave soul who concludes that education and skills will be immune from the AME-DEL battle. Even if the world of education and skills is protected to some degree, pressure to reduce unit funding and turn grants into loans will only grow.

*Budget 2012, HM Treasury, March 2012

Mark Corney is policy adviser to the Campaign for Learning and writes in a personal capacity

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