Spending review lessons from Sheffield for Osborne

A field on the outskirts of Sheffield should have much-needed houses on it.   Three years ago, before George Osborne’s spending review, the diggers were ready to move in. You can still see the foundations of the flats knocked down to clear the site. But three dozen houses were never built. It would have created jobs, growth, and helped quell Sheffield’s housing shortage. But the subsidy for housing fell from £40,000 to £15,000 per house.

It was a victim of the 2010 spending review, meant to help shrink a record deficit – a seminal event in British politics.  Some gave apocalyptic warnings that it would devastate public services in this country.  Others  maintained the public sector was bloated and the cuts have been minimal – or even non-existent.  So what’s the truth of what happened in the last spending review?  And did George Osborne make the right cuts?

Housing was amongst the worst hit three years ago. Eric Pickles’ communities department saw its budget drop from £13bn to barely £4bn last year; that was mainly housing, down 70 percent. Vince Cable’s business department was cut from £20bn to £16bn – that’s tuition fees, and business support, for example. And local government funding went from £27bn to £24bn, impacting on local services. These big cuts have meant fundamental changes in these departments.

So Sheffield city council has seen its budget, at least for refuse collection, trashed. Bin collection has been moved from weekly to fortnightly – and collection of green waste has been scrapped unless you pay for it. That’s saved £4m a year. Overall more than a thousand jobs have been lost. It’s been tough – but not as bad so far as was predicted.

Julie Dore, the council leader (Labour, won from the Lib Dems) says that’s because the real cuts in council services are beginning in earnest now. These are cuts to youth services, sports, and libraries. Intriguingly, a well-connected local campaigner called Nick Clegg has joined protests against library closures.

The most high profile cut: Don Valley athletics stadium – the training ground for Jessica Ennis.  It will close in 12 weeks’ time and be demolished as the council withdraws £70,000 a year.

Yet if all that looks like “brutal austerity”, why across Britain has total cash spent by government now topped £700bn? That is more than the cash spending under Labour in 2009/10, basically flat in real terms. You have to split spending into departmental spending and annually managed spending.

The austerity is in departmental spending, which has fallen from £376bn to £354bn in cash terms. A large chunk of that is ringfenced, so the austerity has been channelled like a tsunami on a the small number of departments above. Brutal austerity is concentrated in distinct patches. But was it absolutely the wrong patches?

Capital spending was halved from £49bn to £24bn. Capital spending is, of course, the absolute best sort of government spending to boost a flat economy. The government has a list of £310bn worth of infrastructure that Britain requires.

Britain has low borrowing rates. And now, on Wednesday, the government will announce how it is going to increase this type of spending.

So where has the money gone? Annually managed spending on pensions, benefits and debt interest is up 20 per cent from £290bn to £350bn. Gordon Brown once called this part of the budget “the costs of failure”.

Tomorrow George Osborne will begin a Dutch auction with Ed Balls on how to cap AME to prioritise capital. It is reasonable to ask why this was not done three years ago, or even earlier.

The lesson of the past spending review was feast and famine.  Some areas were hugely impacted, ringfenced areas carried on regardless. Decisions driven principally by the politics of what would be noticed and less by the economics of making Britain grow.

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