An analysis of the UK government spending review announced 25th November 2015

30 Nov 2015

This afternoon, Chancellor George Osborne MP delivered his Autumn Statement in the Commons, along with the results of the Spending Review, outlining the cuts to departmental expenditure required to clear the deficit before 2020.

Osborne was boosted by better growth forecasts from the OBR despite recent signs of weakness in the global economy, enabling the him to unveil some headline grabbing measures. These included confirmation that there would be no cut to police budgets at all, with Osborne committing to real terms protection for police funding. In addition, the Chancellor confirmed that his proposed cuts to Tax Credits, which have been a source of much political difficulty for him personally in recent weeks, would be scrapped.

The size and scope of the Apprenticeship Levy has surprised a few in the business world, and the CBI has already come out to criticise it, describing it as a “sting in the tail” of what was otherwise a good Spending Review for longer term investment .

On energy, the Government has again made clear that its focus is on security whilst also delivering value for consumers. Osborne announced that ECO will be scrapped in April 2017 and replaced with “a new cheaper domestic energy efficiency supplier obligation which will run for 5 years”.

The initial reaction from political commentators suggests that today has been a successful one for the Chancellor. Though, as ever, the devil will be in the detail - and we’d expect some more difficult questions for HMT to arise over the next few days as the documents are analysed at length.

Further detail on the announcements of interest are provided below.

     Opposition response

The response of Shadow Chancellor John McDonnell MP to the Autumn Statement, began with criticism of Osborne for failing to cut the deficit in one parliament, as he had originally promised in 2010.

Although the thrust of many of McDonnell’s arguments was sound, it appeared to have little impact on those opposite - with his statements on deficit reduction and economic credibility prompting laughter from the Government benches.

As you’d expect, most of the cuts outlined by his Osborne were criticised in turn by McDonnell. In particular he picked out those to DECC - stating that the UK’s solar industry was being killed off - and to BIS - which he said was being effectively shut down.


     Departmental settlements

The Spending Review portion of today’s events will likely garner plenty of attention. With Health, Defence, Foreign Aid and Education spending already ring-fenced, other departments have received significant cuts to their budgets, as had been widely trailed in the media. Settlements of interest include:  

  • DECC has agreed a resource saving of 22% by 2019-20.
    • This is to be delivered through efficiencies in pooling back office and corporate services, and reducing the cost of contracts to manage the country’s historic coal and nuclear liabilities.


  • BIS has agreed a settlement that will see its day-to-day resource budget fall by 17% by 2019-20
    • This is to be achieved by switching HE maintenance grants to loans, exempting Energy Intensive Industries (EIIs) from the costs of renewables policy rather than paying cash compensation, asking universities to take more responsibility for student access, and finding £360 million in efficiencies and savings in adult skills.

   Key announcements


Osborne announced that the Government is implementing a package of measures to reduce the projected cost of green policies on the average annual household energy bill by £30 from 2017.

The bulk of these savings will come from reforms to the current Energy Company Obligation (ECO) scheme. This will be replaced from April 2017 with a new cheaper domestic energy efficiency supplier obligation which will run for 5 years.

The new scheme will upgrade the energy efficiency of over 200,000 homes per year, saving those homes up to £300 off their annual energy bill, tackling the root cause of fuel poverty and delivering on the government’s commitment to help 1 million more homes this Parliament.

Other measures announce include:

  • The Government will provide £295 million over 5 years to improve the energy efficiency of schools, hospitals and other public sector buildings.
  • £300 million of funding for up to 200 heat networks will generate enough heat to support the equivalent of over 400,000 homes and leverage up to £2 billion of private capital investment.
  • Doubling of investment in DECC’s innovation programme will help position the UK as an international leader in small modular nuclear reactors, and deliver commitments on seed funding for promising new renewable energy technologies and smart grids.
  • Increase in funding for the Renewable Heat Incentive to £1.15 billion in 2021 to ensure that the UK continues to make progress towards its climate goals while reforming the scheme to improve value for money, delivering savings of almost £700 million by 2020-21.
  • Doubling of DECC’s innovation programme to £500 million over 5 years, which will strengthen the future security of supply, reduce the costs of decarbonisation and boost industrial and research capabilities
  • Shale Wealth Fund – The government will establish a Shale Wealth Fund from shale gas revenues which will see up to 10% of the tax revenues from shale gas spent in local areas.


  • Innovate UK support for businesses and funding for aerospace and automotive technologies will be maintained in real terms.
  • By 2019-20, government spending on apprenticeships will have doubled in cash terms compared to 2010-112, including income from the new apprenticeship levy.
  • The apprenticeship levy is set to raise £3bn a year. It will be set at 0.5% of the payroll bill. But there will be a £15,000 allowance, so 98% of employers will not pay.
  • The government commits to funding aerospace and automotive technologies for 10 years. This will provide over £1 billion additional funding for innovation in these sectors.
  • Abolition of the uniform business rate, with local government allowed to cut rates and keep all revenue raised by 2020.
  • Extension of the small business rate relief scheme for another year.
  • £165m of new loans to companies instead of grants.
  • Science funding of £4.7 billion will be protected in real terms and total spend will be over £500 million higher by the end of the Parliament compared to 2015-16.

Climate Change

  • The government will continue to push for a strong global climate change agreement in Paris this December, to keep the goal of limiting global warming to 2 degrees above pre-industrial levels firmly within reach.
  • The Spending Review announces a 50% increase in funding over the next 5 years for developing countries to tackle and adapt to climate change.
  • The government will double its domestic energy innovation programme. In line with this, the UK will continue to play a leading role in international research efforts to reduce the costs of low carbon energy, working with other countries to strengthen international collaboration and transparency in clean energy research, development and demonstration.
Autumn Statement and Spending Review 2015 - Click here to download