Exclusive: Cash may run out for public bodies hit by cuts

Insufficient planning means some public organisations will pile up deficits in an echo of the 500m debt crisis NHS trusts faced five years ago.

The warning from consultants KPMG comes as the staggering extent of Labour's spending splurge in Yorkshire is revealed ahead of Wednesday's Comprehensive Spending Review.

The amount of public money spent in the region soared by more than 35 per cent in just five years – from 32bn in 2004/05 to an expected 44bn last year, analysis by the Yorkshire Post reveals.

More than 40 per cent was on social security, exacerbated by increasing numbers of people claiming Jobseekers' Allowance.

Now the region is braced for significant cuts as the Treasury sets out which departments will be hardest hit as Government spending is curbed by 83bn a year by the middle of the decade, with business leaders urging Ministers against making "indiscriminate" cuts.

The coalition has made a point of attacking Labour spending for building up a massive national debt which has already prompted school building projects to be cancelled, transport schemes put on hold and an 80m loan to steelmaker Sheffield Forgemasters to be axed.

Transport, local government and the environment are all areas particularly vulnerable to further cuts when spending plans are unveiled.

Iain Hasdell, the Leeds-based UK Head of Local and Regional Government for consultants KPMG, said some of Yorkshire's public sector is prepared for the cuts but other organisations are ill-prepared for the severity of the shocks to come.

"I would like to see more public sector organisations scenario planning for instances in which they might literally run out of money so that if it does happen they have planned for the eventuality," he said.

"I am expecting a number of public sector bodies in the region to run out of cash at some point in the next five years in much the same way as Primary Care Trusts and other parts of the health economy did in 2005/6 including some health organisations in our region."

And consultant Grant Thornton, which predicts the Chancellor will be making cuts in spending of 60-70bn alongside increases in tax of around 20bn, has warned it could be months before the true cost is appreciated.

Mark Burke, regional head of Government Infrastructure Advisory service at Grant Thornton, said: "The Spending Review national settlements on Wednesday will be just the beginning, not the end of the process for determining the specific implications of deficit reduction.

"Immediately after the Chancellor has made his statement, departments will have to start work on allocating their individual settlements to budget lines. This work will take at least two to three months, so it could be January before we know the real impact and what cuts may mean for specific programmes, for individual local authorities, NHS trusts and other public bodies."

Five years ago North Yorkshire and York Primary Care Trust ended the year 32m in the red, while significant deficits were also recorded at the Wakefield-based Mid Yorkshire trust,the Scarborough and North East Yorkshire Trust and North Lincolnshire Primary Care Trust. Nationally the NHS ran more than 500m into the red, prompting trusts to cut services to balance the books.

Business leaders – who back the need for tough action to reduce the 156bn deficit – warn against going too far.

Nick Pontone, policy director of Yorkshire and Humber Chambers of Commerce, said: "Cuts should be significant but not indiscriminate and there must a 'golden thread' running through each individual decision which prioritises spending which ultimately boosts long term economic growth and the most essential public services."