Spending cuts: The biggest losers

We run down the main features of the Spending Review, and what it means for you.

If you believed the hysteria ahead of the speech itself, today’s spending review by the Chancellor George Osborne was the equivalent of the end of the world, the beginning of a slash and burn approach to public services.

While it didn’t quite reach those levels of savagery, there were some severe changes. Let’s take a look at how they will affect our bank balance, and our job security.

Jobs

Let’s get started with the issue closest to the heart of all of us – how will these changes affect our job?

The Chancellor confirmed that the big changes to the various Government departments will lead to a pretty significant job reduction of around 490,000 in the public sector, equivalent to around 8% of public sector employees. However, Osborne argued that much of those job reductions would come from workers leaving their posts of their own accord and simply not being replaced, something often termed ‘natural wastage’.

Only time will tell how realistic a claim that is. Of course the Government did not mention the impact these budget cuts will have on private sector firms that rely on Government contracts, but make no mistake there will be an impact.

So if you work in the public sector, or work for a firm that relies on commissions from the public sector, things may be somewhat sticky over the next couple of years.

We’ll all be working longer

For many of us, the most significant changes announced in the Spending Review surrounded changes to pensions.

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The Chancellor announced that the State Pension age would increase for both men and women from 65 to 66 in 2020, four years ahead of the previous schedule. This will have a big impact on female workers, who will see the State Pension age jump from 60 to 65 between 2016 and 2018, and then up to 66 two years later.

What’s more, if you’re a public sector employee, will also likely be somewhat different to that which you expected. There will be an increase in employee contributions (this will be staggered to help those on low pay or in the armed forces), though actual details on how pensions will change will have to wait – the Government will conduct a full consultation on the various options, so don’t expect any final decisions until next year.

Get on your bike

How you get to work might need to change though. The Chancellor talked at length about infrastructure changes to Britain’s transport network, but the key change was increasing the cap on rail fares to 3% above RPI from 2012.

For those of us who rely on the rail networks to get to work, that could mean a serious hit on our wallet (and it’s not like trains into London are cheap at the moment).

It may be time to dust off your bike for a cheaper way into work.

Welfare cuts

Of course much of the tough talking ahead of the review focused on those not in work, and relying on the welfare state, rather than those already in employment.

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Osborne reeled off a list of changes to the welfare system (anyone would think he didn’t want us to take it all in) which he reckons will amount to £7bn of savings a year.

These include controlling the cost of tax credits, reforming employment and support allowance and capping the amount a family on benefits can earn, so that it is never more than the average family earns.

Despite all these changes, the Chancellor felt able to increase the child element of the working tax credit.

An interesting point to note – last month when the Government announced the removal of Child Benefit from higher-rate taxpayers, it was said it would save the nation around £1.1bn a year. In the fortnight since, that has somehow grown to £2.5bn, quite the mathematical feat.

A decent day for pensioners

One winner from the spending review is the nation’s pensioners.

Despite the many stories in advance of the review warning of cuts to benefits to pensioners, free bus passes have been retained, as have free TV licences. What’s more, the temporary increase in the winter heating allowance has been made permanent.

Bashing the banks

Of course, it wouldn’t be a financial speech these days without a section set aside for giving the banks a good kicking, and the Chancellor was happy to oblige, adding that he wanted to extract maximum revenues from financial services.

The bank levy introduced by the previous Government will be made permanent, though full details are yet to be revealed.

Housing changes

Thanks to good old-fashioned leaking we all knew what changes would be happening to the social housing sector, and Osborne did not disappoint, confirming everything we looked at in Huge housing cuts on the way without mentioning the massive cuts in the housing budget.

A few positives

However, it wasn’t all bad news. The Chancellor confirmed free entry to certain museums and galleries will remain, while the licence fee has also been frozen for the next six years.

Environmentalists will also be pleased - there has been £200m set aside for funding of wind power development, as well as £1bn put aside to help fund a Green Investment Bank.

The over-riding message, once again, was that we’re all in it together. Even the Queen has agreed to slash the Royal Household’s budget by 14% in 2012/13. Will someone think of the corgis?

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