By ADRIAN LOWCOCK 20/10/2010
Today George Osborne made his long anticipated announcements on the spending cuts to the public sector. The full impact of the cuts will be revealed in due course, however the key points are detailed below:
- 490,000 public sector jobs will go over the next four years, with many going through natural turnover
- Retirement age will rise from 65 for men and 60 for women to 66 by 2020
- A permanent bank levy is to be introduced
- The Bank of England is to be given supervisory responsibility over the banking sector
- Cuts in the welfare system to provide £7 billion of savings
- Green Investment Bank is to be set up
- Science Industry to be protected, with their £4.6 billion per year budget frozen
- £30 billion to be invested in transport infrastructure
Pensions
Following on from last week’s announcements regarding the pension contribution rules, the Chancellor has announced a rise in the retirement age to 66 from 2020, although the increase will be phased in from 2018. This brings forward planned increases 6 years and will save the Government £5 billion a year.
Tim Stalkartt, Head of Financial Planning says: ‘As usual, the Government have managed expectations well, there was the possibility that they would bring forward increases to 2016, so 2020 feels like a reprieve, whilst acknowledging the issue of an ageing population.’
Green Investment Bank
The Government has committed £1 billion of funding to set up the new bank, confirming its future. In addition, it will also be funded through receipts from future sale of Government assets. The Chancellor is supporting incentives to encourage people to cut their utility bills and to invest in renewable energy sources.
However, funding for the Department of Energy and Climate Change will fall by an average of 5% each year, whilst the Department for the Environment, Food and Rural Affairs must save an average of 8% per year.
Science Industry
Following on from the theme of investing in renewable energy, the Chancellor announced there would be no cuts from the £4.6 billion budget for the Science Industry, although the budget will remain frozen for the next 4 years. Osborne emphasised his support for the industry and made reference to diversifying the UK away from being solely dependent on it’s banking system.
Transport & Infrastructure
In the spending review, the Chancellor announced a £30 billion investment into transport links and infrastructure over the next 4 years. This will include major upgrades to road networks across the country, the progression of Crossrail in London and upgrades to tube stations.
In summary
The spending review should result in the structural deficit, the bit that exists even in when the economy is operating at its potential, being eliminated by 2015. Total spending will fall 0.7% a year after inflation, compared to the 1.2% annual rises we saw under the 11 years Margaret Thatcher, the Iron Lady, was in power.
Graham Frost, Chief Investment Officer says ‘The announcements made in the spending review have not come as a great surprise and markets have barely moved in response. Sterling and Gilt yields fell more on the back of the increasing likelihood of further quantitative easing inferred by uncertainty in the Bank of England minutes published this morning.’
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