Chancellor warned over ‘very testing’ budget cuts

A report out today taking the widest look yet at Government spending concluded that the scale of the task facing ministers as they seek to cut the deficit should “not be underestimated”.

MPs on the Commons Public Accounts Committee said the Treasury would face a difficult task in cutting spending when protected areas such as health or foreign aid were taken into account.

And there was criticism for ministers who appear to have capped the wages of rank and file publc sector workers while relaxing their grip on senior pay packets,

In its report on the whole of Government accounts, the committee criticised the Treasury for failing to provide sufficient oversight on some areas of public sector pay and said ministers and officials should provide an assessment of how much money was lost to fraud and error across government.

The committee’s report warns: “The Government has currently delivered only half of its planned measures to balance public sector income and expenditure.

“The experience in the delivery of consolidation measures to date, where for example the planned increases in tax revenues have not been realised, also show that the Government will face a significant challenge in delivering the next phase of the consolidation.”

MPs added: “The report continued: “The challenge in delivering further fiscal consolidation measures during the next Parliament should not be underestimated.

“Under present policies some £250 billion out of over £700 billion public expenditure is protected from spending cuts and tax receipts continue to be well below forecasts.

“This leaves the challenge of identifying and delivering further expenditure cuts as very testing.

“As well as the uncertainty around the levels of tax revenues, the challenge of delivering further savings in public sector spending is likely to be greater than that experienced so far given the large areas of expenditure that are protected.

Committee chairman Margaret Hodge said: “The Treasury plans that, by the end of the current Parliament, some £126 billion of consolidation measures will be achieved from a combination of spending cuts – some £100 billion – and increased tax revenues – around £26 billion.

“However, tax revenues have not been increasing as expected and, although the spending cuts are being delivered, officials are less clear where the savings have been made.

“The Treasury plans to save some £20 billion from welfare savings, £20 billion from reducing the public sector workforce, £6 billion from pay restraint, and £5 billion from increasing pension contributions from public sector workers over the spending review period. But the make-up of the remaining savings is not clear.

“The challenge in delivering further fiscal consolidation measures during the next Parliament should not be underestimated.

The MPs also said “off payroll” arrangements, where individuals have their salary paid to a company to avoid income tax, were still used “too often” in the public sector, with the National Audit Office (NAO) identifying 2,214 new arrangements in 2013-14.