Treasury set for tense talks with ministers over proposed £20bn savings

George Osborne At Reception

A tense round of negotiations is to be held at senior levels in Whitehall over the next month as a series of cabinet ministers fight Treasury plans to produce departmental savings of £20bn in next month’s spending review.

The Treasury signalled that ministers are hesitating when it admitted after the first meeting of the cabinet’s public expenditure committee (PEX) that some departments had yet to produce final bids.

Philip Hammond, the foreign secretary who attended the meeting, is digging in along with the home secretary Theresa May – who sent her junior minister Richard Harrington to the meeing.

George Osborne chaired the meeting after he called on cabinet ministers in July to provide detailed costings for departmental savings at two levels – 25% and 40% – in areas that are unprotected.

The two key protected areas are health, where spending increases at least in line with inflation, and overseas aid, whose budget must account for 0.7% of gross national income (GNI). The departmental cuts are on top of the £12bn of welfare cuts announced by the chancellor in the budget.

A Treasury source struck an upbeat note after the meeting, saying that all government departments are now engaged though they have yet to present their final bids.

The Treasury said that the chancellor and his deputy, chief secretary Greg Hands, are keen to avoid what areknown in Whitehall as “salami slicing” cuts, in which public services are arbitrarily cut back. Osborne and Hands instead want to focus on how services can be delivered more efficiently in what the Treasury is dubbing as a “more for less” approach.

The chancellor is focusing on two key areas:

  • Redirecting Britain’s aid budget, which is increasing by hundreds of millions of pounds a year in line with the UK’s commitments to the UN as the UK economy grows, towards humanitarian emergencies. Osborne wants to increase the size of the reserve that is set aside for emergencies. The chancellor has already announced that the uplift in spending on overseas aid, the extra money triggered under the UK’s commitment to spend 0.7% of its GNI on international development, should be spent on emergencies such as the refugee crisis in Syria.
  • Speeding up the devolution of powers, as part of Osborne’s northern powerhouse plan, following the chancellor’s announcement in his conference speech that he would devolve business rates. A series of devolution deals will be negotiated with regions.

A Treasury source said: “The government has already directed the aid budget towards supporting those caught up in the Syrian refugee crisis, and plans to use it to support the 20,000 of them we have agreed should settle in Britain over the next five years.

“The government is discussing holding more money in reserve so we can respond even better to humanitarian crises, and how we can target money at the global challenges that threaten Britain.

“Following the plans set out at the Conservative conference for a devolution revolution involving councils retaining all £26bn in business rate revenue, including new freedoms to alter rates, ministers also discussed devolving powers, responsibilities and funding to local areas. We are determined to refashion the relationship between local and central government and give cities and regions the right to stand on their own and make their own decisions.”

Osborne and Hands were joined at the meeting by eight spending cabinet ministers – Iain Duncan Smith, Jeremy Hunt, Sajid Javid, John Whittingdale, Greg Clark, Justine Greening, Patrick McLoughlin and Philip Hammond.

The Treasury source added: “The spending review next month isn’t just about saving money so that Britain lives within its means and starts running the strongest budget in half a century, but how we can get more for the taxpayers’ money we do spend.

“So the chancellor has today chaired the first cabinet-level committee to discuss how Whitehall departments will deliver on the government’s commitment to fix the public finances while delivering a smarter state.”

Powered by Guardian.co.ukThis article was written by Nicholas Watt Chief political correspondent, for theguardian.com on Tuesday 20th October 2015 00.48 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010