Business

UK cuts £6.7bn more than planned

  • 6 July 2012
  • From the section Business
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UK Chancellor of the Exchequer George Osborne
Image caption George Osborne has been criticised for using some of the savings for tax cuts for the wealthy

Government departments cut spending by £6.7bn more than they had planned in the year to March, according to official data from the Treasury.

Spending was down £11bn compared with 2010-11 , but government plans had been for a reduction of £4.4bn, it shows.

According to analysis by the Institute for Fiscal Studies , only £900m of that will be carried forward to next year.

The rest of the money, which includes a £1.4bn reserve, will be clawed back for reallocation by the Treasury.

The biggest underspend was in the National Health Service, which came in £1.7bn under budget.

Earlier this year, the government said savings from capital expenditure, such as large IT projects, were the main reason for the surplus, as opposed to cuts to front-line staff.

The underspend represents 1.6% of the 2011-12 NHS budget. However, other smaller departments such as Energy and Climate Change have given up as much as 13.9% of their allocated budgets.

On average departments spent 98.6% of the money they were allocated in 2011-12.

Finances vs growth

As a result of the large underspend, the government is on target to reduce its deficit twice as fast. The gap between spending and tax receipts or other income should now fall by £8.8bn instead of the forecast £4.4bn.

However, opinion is divided as to whether a smaller-than-expected budget deficit is a good thing or not.

The Labour Party has called on the government to reduce spending cuts and planned job losses in order to promote economic growth.

Economic wealth as measured by gross domestic product shrank 0.4% at the end of 2011 and 0.3% in the first three months of 2012. Two quarters of shrinking wealth is often defined as a recession - the UK's second recession in two years.

A shrinking economy risks putting more pressure on government finances as spending on unemployment benefits and income support rises, whilst tax receipts tend to fall in line with household incomes and company profits.

Unemployment and job prospects are the single biggest factor in determining household confidence to spend and invest in the future which, in turn, generates economic wealth.

The government cut 270,000 public sector jobs last year. Some of those have been replaced by new jobs in the private sector but not enough to have made a significant impact on high unemployment levels.

Some 2.61m Britons were out of work in the three months to April, down only slightly from its peak of 2.67m in January.