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The mystery of the missing millions

The government is normally keen to shout about efficiency savings. So why is the Treasury so reluctant to say how the departments responsible for housing and benefits saved £1.6 billion last year? Rhiannon Bury investigates

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The Budget for this year has been and gone, packed as it was with hype, spin, and a gratifying amount of promise for housing.

It was widely touted as the builders’ Budget: a significant £3.5 billion fund to extend existing shared equity and mortgage guarantee schemes meant house builders stand to do well out of a legion of people now able, in theory, to get on the housing ladder. Meanwhile developers could take advantage of £800 million extra to fund private rented housing, and an additional £225 million for affordable housing.

But there was one line which, perhaps, gained less coverage than it deserved. When chancellor George Osborne stood at the dispatch box to deliver his speech, he revealed that government departments are due to underspend on their budgets by an astonishing £11 billion in the last financial year.

Looking more closely, a table buried deep in the Budget documents reveals the underspend already totals £8.7 billion, including underspends of £800 million by both the Communities and Local Government department and the Department for Work and Pensions (see table, below). Mr Osborne expects the £8.7 billion to rise to £11 billion once final end of year calculations have been made for 2012/13.

So why, in an era of mass cuts and with welfare reforms starting to bite, hasn’t this significant sum been spent? Indeed, is it an underspend at all, or a carefully crafted cut from the chancellor? It makes for an intriguing parlour game. Did the savings come from Mr Pickles, in the CLG with the affordable housing budget? Or was it Iain Duncan Smith, lurking in the DWP with the housing benefit budget?

Tightened belts

Answers to these questions are not easy to come by. The chancellor put the underspend down to ‘tough financial control’ and gently encouraging government departments to cut down where possible. Mr Osborne sent a letter to each department earlier this year, asking them to ensure they were not spending money at the end of the year for the sake of it, but more prudently allocating funds to projects that were specific priorities.

‘We want to ensure departments have budgets that are more closely aligned to what they actually spend,’ Mr Osborne said during his Budget speech.

Despite the DWP and CLG having done remarkably well, on the face of it, in complying with Mr Osborne’s request, the Treasury is coy when asked to account for the savings. It remained tight-lipped when asked whether this constituted an in-year cut for departments. Given that Mr Osborne is asking them to spend less money, it sounds suspiciously like one.

Research from the government’s independent Office for Budget Responsibility suggested that at least some of the underspend may be due to government departments postponing payment for costs they have already incurred into the following financial year, effectively pushing this year’s budget into next.

Most intriguingly, the Treasury admitted the underspend was ‘a mix of capital and revenue spending’. Revenue spending includes things such as wages and running expenses of buildings, but capital is likely to be projects departments are responsible for, like the cost of welfare reform and housing.

Mr Osborne’s predicted underspend of £11 billion is quite a sum, but the Treasury refused to break down exactly where savings were made. As a result, it’s unclear how much of the £800 million DWP underspend recorded in the Budget document could, for example, have been used to boost discretionary housing payments to relieve the most vulnerable hit by the bedroom tax. Of this sum, £100 million is attributed to capital savings according to Treasury documents.

A spokesperson for the DWP rather cryptically said the underspend was due to ‘efficiency and administrative savings’, but he could not give a final figure for the year and would not give any more detail.

Questions about the CLG met with a similar refusal to say how it saved £800 million, £300 million of which was capital funding, according to the Budget document. It could have been office facilities - last week the department moved from Eland House to share with the Home Office, which is expected to save £8 million. Or it could have been saved by not building affordable homes or by scrapping expert homelessness advisors, which were disbanded at the end of last month. However it was achieved, the departments don’t want to say.

No clues

Richard Kemp, a councillor in Liverpool, where cuts amounting to £32 million have been made this financial year, and leader of the Liberal Democrats in local government until August 2011, is fatalistic about the chances of ever tracking the information down.

‘It could be that [departments] genuinely found savings,’ he said. ‘Or it could have been a flabby budget to begin with. The chances are we will never know.’

In addition to all this is the promise that in future years, the government wants departments to reduce their spending even further. Mr Osborne has asked each department, excluding health and education, to cut their budgets by an additional 1 per cent in each of the next two years.

‘The Budget was fiscally neutral,’ explains Stuart Ropke, assistant director of research and futures at the National Housing Federation, meaning that there would be no more debt taken on to fund any initiatives.

‘So in order to fund some of the schemes that [Mr Osborne] announced, he would expect departments to find an additional cut of 1 per cent from next year.’

Mr Ropke maintains that it’s about reallocating money from one pot to another, rather than reducing budgets outright.

But more interesting, perhaps, is the commitment from the government to spend future savings, at least ‘in the short term’, on housing.

The Budget document states: ‘Building on this lower level of spending, Budget 2013 announces a reduction in resource departmental expenditure limits by £1.1 billion in 2013/14 and £1.2 billion in 2014/15. In the short term, these funds will be used to help support housing.’

Details of exactly how the government will spend the money on housing will be announced in the autumn statement later this year, according to a Treasury spokesperson.

The Treasury would not be drawn on whether the money will be used for existing spending commitment or to fund entirely new projects.

‘This will be made clear later on,’ was all the spokesperson would say.

Housing need

Gavin Smart, director of policy and practice at the Chartered Institute of Housing, is clear about how the money should be spent.

‘We have a huge shortage of housing, and affordable homes in particular, so if the government has any spare money, affordable homes is what it should investing in,’ he says.

‘One way of doing this would be to raise local authority housing revenue account debt caps by £7 billion.’ This, he explains, could provide 75,000 homes over five years if the government would grant the extra borrowing powers.

The bottom line is that there’s a spare £11 billion floating around and no one quite knows where it has come from. But the noises coming from Treasury are positive - if the government wants to spend any future savings on housing, then perhaps for the moment, ignorance is bliss.

Departmental underspend (before final end of year calculations)

Government departmentResource underspend
in 2012/13
Capital underspend
in 2012/13
Communities and Local Government department£500m£300m
Department for Work and Pensions£700m£100m
Other departments£6.4bn£700m
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