Austerity set to continue as Treasury tells departments to prepare for more cuts

The UK Government's commitment to austerity looks set to continue after the Treasury wrote to departments to tell them to plan for a further round of funding reductions ahead of next year’s Spending Review.

The first request for details of departmental spending plans was sent to departments last week, according to a report in The Times, with chief secretary to the Treasury Liz Truss called for departments whose budgets have not been protected to work with the finance ministry this summer to identify potential savings.

The letter does not contain a target for reductions, but it is thought some departments are expected to find five per cent of savings.

Chancellor Phillip Hammond has previously warned that the Treasury's £20bn boost for the NHS will leave them with no extra money to spend on their own policy areas, while Truss has told departments they should rein in thier spending demands as there will be little money to boost budgets in the 2019 review.

The full review of departmental spending, announced by Hammond in March, will follow the publication of the overall spending envelope later this year.

One minister told The Times: “Philip Hammond has got Theresa May to agree to no more borrowing [above the fiscal rules] so that means it looks like cuts to pay for the extra money for the NHS. But the answer is to raise taxes to protect spending.”

Meanwhile, a new paper from the University of Warwick has suggested austerity may have played a role in the decision to leave the European Union.

Analysis by Economist Professor Thiemo Fetzer suggests the policies of austerity may have tipped the balance towards a Leave vote in the 2016 referendum by as much as ten percentage points.

Leave areas, Fetzer said, tended to be places which had felt the most impact on wage growth from globalisation and after measures brought in by the 2010 Conservative/Liberal Democrat coalition the welfare state beacme less responsive in mitigating that.

"The most vulnerable tended to become more dissatisfied with the existing political establishment and shifted their support to UKIP," he said.

"The empirical estimates suggest that in districts that received the average austerity shock, UK vote shares were higher than districts that were less exposed – by 3.6 percentage points in the 2014 European elections and by up to 11.6 points in local elections in 2016," he said.

"On June 23 of that year, the country reaped the whirlwind."