Ring-fences and roller coasters: why the Budget looks bad for DECC

red boxLast week, Green Alliance outlined how pre-election Conservative Party spending promises might affect DECC’s budget. The headline was that 90 per cent of DECC’s staff budget could vanish by 2018-19 due to four factors:

  • Ring-fencing health, international development and education spending.
  • The ‘roller coaster’ effect of applying spending reductions early on in the parliament.
  • Protecting DECC’s spending on historic nuclear and coal liabilities.
  • Restraining resource spending to enable capital spending to grow.

Here’s how those numbers looked:
(click image to expand)

CP preelection spending plan This week, the chancellor set out his new spending plans. The Budget excluded detailed departmental spending plans (we’ll have to wait for the comprehensive spending review later this year for those), but he made three very big changes to the overall spending envelope:

  • The defence budget was both ring-fenced and raised (to meet NATO commitments).
  • The ‘roller-coaster’ was smoothed out (partly, more on this below).
  • The balance of capital and resource spending was altered (mainly by ring-fencing defence).

Here are the new numbers:
(click image to expand)

July 2015 Budget implications for DECCThis is much worse for DECC. Over the course of the parliament, DECC’s total non ring-fenced spending (not shown above) would fall by 56 per cent, with implied spending allocated to staffing and analysis falling below zero by 2019-20.

This is clearly absurd, and highlights just how unusual DECC’s spending needs are. If it is to help the UK to achieve secure, clean, affordable energy supplies, DECC now needs a radically better settlement than the average non-ring fenced department.

The detail

News headlines after the Budget suggested the chancellor had actually increased spending relative to his last budget in March, so why are things worse for DECC? Here we explain some of the detail.

The March coalition budget planned for much steeper spending reductions than the Conservative Party subsequently promised during the election campaign. Because our analysis was based on Conservative and not coalition plans, it always looked much better for DECC.

The biggest change between pre-election Conservative plans and the new Budget is the NATO commitment to defence spending. This ring-fences an additional £40 billion, meaning 67 per cent of Departmental Expenditure Limit (DEL) spending will be ring-fenced over the course of the parliament. Any reductions will therefore have to come from a smaller group of unprotected departments.

Including defence spending in the ring-fence has another significant effect for DECC: it reintroduces the ‘roller coaster’. Because defence spending is more capital intensive than the average department and capital spending is projected to rise rapidly after 2017-18, DECC’s budget would see a sharp roller coaster. The two graphs below show how the uptick in capital spending in 2017-18 affects DECC’s budget.

(click image to expand)

DECC DEL vs Gov't cDEL

This analysis comes with a word of caution: the government has not yet committed to this profile of spending, and the comprehensive spending review later this year will be an opportunity to address DECC’s budget directly. But the big picture is that the large majority of government departmental spending is now protected, and the pressure to   restrain spending by DECC has significantly increased.

One comment

  • What we have to do is keep faith with the idea that solar energy is competitive and does not need to be subsidised for ever. What we have to do is to stop our government funding daft false solutions like nuclear power and save the money there. Just ask how much money has been poured into Windscale to clear up nuclear disaster without any progress . Ask too about making the carbon polluters pay when we look a conventional fuels pushing out carbon dioxide helped by subsidy for ever because we have not yet set an effective carbon pollution control policy. Add the disaster of fracking

    The real challenge at the moment is to make significant progress on the economic storage of energy generated from use of natural resources tto address the challenge of the inter-mitancy of natural climate resources. Biology solved the problem over millions of years through evolution of a life system that can store energy

    . I have now 60 years of experience of solar energy attending the first World Solar Energy Conference in Arizona. We have a Chancellor of the Exchequer who intellectually lives in the stone age avoiding modern science

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