Spending review’s winners and losers

Andy Westwood on the shift from ‘human’ to ‘intellectual’ capital

July 4, 2013

After a spending review that was always going to be more political than economic in nature, the settlement is better than expected

The road to last week’s spending review – which covers only a single year, 2015-16 – has been long. Business secretary Vince Cable was reportedly the last Cabinet minister to settle with the Treasury, and taking it to the wire looks to have paid off.

In the run-up to the statement, the Department for Business, Innovation and Skills was expecting a cut of between 8 per cent and 10 per cent – a reduction of at least £1 billion. In the end, the fall from 2014-15 to 2015-16 is only 4.4 per cent in cash terms.

Of course, there is more to come. After the general election, there will be another review. The Institute for Public Policy Research thinktank has calculated that BIS will still need to find an additional £1.7 billion in savings in the period 2016-18.

This year, BIS’ budget is more than £14.5 billion. Next year it will be £13.6 billion and we now know it will be £13 billion in 2015-16. So that’s already £1.5 billion less than this year and potentially a cut of £3.2 billion by 2017-18 if the IPPR is right.

But for now, at least, after a spending review that was always going to be more political than economic in nature, the settlement is better than many had expected.

There were three big wins for science and research. First was the decision to retain the ring-fence protecting science funding and second was the increase to capital expenditure. But best of all was the late deal to keep medical research and education in BIS. Plans to switch medical budgets between departments would have jeopardised the coherence of the science sector as well as damaging the department’s levers for steering industrial policy.

Did this last-minute decision result in bigger cuts for BIS? It doesn’t look that way. Across Whitehall, the so-called “National Union of Ministers” did rather well – with most departments eventually negotiating reductions lower than the 10 per cent initially touted by the Treasury. In the end the biggest cuts were made to welfare, public sector pay and local government.

The review has killed off the short-lived National Scholarship Programme, but few will miss it. This is a scheme once described by the National Union of Students as “neither national, nor a scholarship, nor a coherent programme”. It was the result of a coalition compromise, designed to appease Liberal Democrat MPs after they agreed to renege on their election pledge by voting to increase tuition fees. The programme was confused from the start, with support split between fee waivers and bursaries.

While its demise will dent Lib Dem and coalition ambitions to improve social mobility, many argue that “student opportunity” funding for widening participation has always been more important. This funding seems to have survived for the time being but remains under serious threat.

This is because the spending review expects savings of “at least £45 million” from the Higher Education Funding Council for England’s teaching budget – and the student opportunity fund, together with support for high-cost subjects and specialist institutions, makes up most of this.

Overall, we are seeing a continuing refocusing of resources – away from the goal of mass participation and towards targeted investment in research and science (or from human capital, to what Chancellor George Osborne described in his speech as “intellectual” capital).

Further and higher education’s role in boosting and broadening human capital certainly seems to be less of a priority: the former took a pasting in the spending review from both the Department for Education (with its ring-fenced schools spending) and BIS.

But the government should not be looking for a “trade-off” between science and research on the one hand and a broader model of human capital on the other. This is based on a false dichotomy: we need both.

How about a different approach? The higher education sector now has an opportunity to agree where the axe to Hefce spending should fall. We can find ways to preserve spending on high-cost subjects and specialist funding as well as for widening participation. It would be far better for the sector to decide than for BIS or the Treasury to do so for us.

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