How deep were the spending review cuts?

Written by: Matt Clay | Published:

Yes, the cuts in George Osborne’s recent spending review were smaller than expected, but the waste industry will largely feel the pinch. Matt Clay asks who the winners and losers will be in this latest reallocation of resources

It was at the end of November when chancellor George Osborne attempted to balance the public’s books. Spending cuts were announced to reduce the often-quoted “deficit” – the big black financial hole that the UK has dug itself into after years of borrowing.

When the last spending review was presented five years ago, the chancellor said his job was to “rescue Britain”. It was a time when the country was “borrowing one pound in every four we spent”. Fast forward half a decade and Osborne said his job was now to rebuild Britain – “Build our finances. Build our defences. Build our society.”

By definition, the spending review is a five-year projection of government spending and decides how £4 trillion of taxpayers’ money will be spent. Good news for the taxpayer – finding how their hard earned money will be put to use, but what did it mean for the UK’s waste and recycling sectors?

Predictions

Ahead of the spending review on November 25, many thought the chancellor’s swinging axe would take a big cut out of the authorities responsible for waste regulation. Speaking ahead of the review, in early November Osborne announced the day-to-day spending of four government departments would be cut by 30% on average over the next four years.

These included Defra (Department for Environment, Food and Rural Affairs), DCLG (Department for Communities and Local Government), the Department for Transport and the Treasury.

It came as a nice surprise, then, that Defra suffered more of a graze than a full 30% cut.

To be precise, a 15% graze. Calling it a “settlement”, the review said changes to Defra include “resource savings of 15% in real terms by 2019-20, delivered through efficiencies within the department and across its network”.

The organisation has been challenged to become more “streamlined” – a business phrase that can in some circumstances be translated into “redundancies” and a phrase that current employees have no doubt come to fear in light of public sector cuts.

Instead, rather than talking about downsizing departments, the 16-part review said Defra will become a “digital department, sharing back-office functions like IT, human resources and finance with its network bodies to reduce unnecessary bureaucracy, and devolving roles to the local front line to ensure effective service delivery”.

Making savings

In money terms, such a reduction in “costly bureaucracy and red tape”, as the review puts it, could bring net savings of £470 million by the end of the parliament. This may sound a lot, but the multi-million-pound saving still remains a fraction of the £2 billion the government committed to flood protection.

“Everyone has a part to play in eliminating the deficit by 2020 and, through its ambitious programme of efficiencies, Defra will go further to become a more modern organisation, streamlining services and doing things more strategically,” said

Elizabeth Truss, environment secretary. Many believe that even though the cuts were smaller than expected, the impact will be felt on waste.

“Clearly the devil will be in the detail, but in what is already a smaller department of government, a £100 million a year, year-on-year, reduction in revenue spending in Defra is significant and will be painful,” says Ray Georgeson, chief executive of the Resource Association.

“We can only hope that whatever efficiency savings are required do not come at the expense of the need to maintain regulatory vigilance on waste crime, proper enforcement of recent regulation such as the MF Regulations, or the vital work still needed to develop our resources sector and circular economy through the work of WRAP.”

Stepping back further from waste

Waste professionals will no doubt be asking whether the 15% cut to Defra will further the distance between the organisation and waste.

In April 2014, Defra controversially said it would be “stepping back” from waste management “where businesses are better placed to act”.

“As the lead department on waste and resources management and environmental protection, CIWM has repeatedly emphasised the need to ensure that Defra remains adequately resourced,” says Steve Lee, chief executive of the Chartered Institution of Wastes Management (CIWM). “The department has already stepped back from waste and resource policy and funding, and further cuts could exacerbate this situation. However, the industry has and will continue to work with the department to ensure that collectively we can move the sustainable waste and resource agenda forward.”

Other industry pundits say the cuts could impact how the UK’s waste industry is perceived from an international leadership point of view.

“If we cut budgets too thinly we undermine the work of the department too much,” adds Dr Adam Read at Ricardo Energy & Environment. “I am glad that the cuts were not as large as had been forecast, but let’s not kid ourselves, there is still a lot of trimming of programmes, projects and priorities facing Defra over the next two or three years and this will impact on those working with them, for them and those responding to their agenda, like local government.”

Read adds: “I don’t think the cuts will help drive the kind of leadership many in England had been hoping for, but it could force a fundamental review of programme and activities which might help improve key areas of their portfolio.”

Defra to one side, another key point from the review was reform of the landfill communities fund. For 2016-17, the value of the fund will be set at £39.3 million, with a cap on contributions by landfill operators amended to 4.2%.

Spotlight on waste crime

Importantly, the chancellor announced that more money would be spent fighting waste crime.

In total, around £20 million of the additional Landfill Tax revenues will be allocated to the Environment Agency (EA) to address waste crime over the next five years.

This follows a report launched by Defra in October based on a consultation to enhance “powers and other measures to tackle waste crime and entrenched poor performance in the waste management industry”.

The EA has made some progress in addressing waste crime over recent years.

Between 2012 and 2013, the organisation stopped illegal activity on just under 1,300 waste sites and 107 “large, serious and organised incidents of waste dumping”.

According to the EA’s Waste Crime Report 2012-2013, this compares to 716 illegal activities stopped the year before.

The CIWM’s Lee says this additional £20 million provides “the guaranteed, medium-term support from the government that the industry has been asking for”.

Operation Rooster

Only three days after the spending review and it was clear that with the additional funding, the EA was moving ahead full speed with its clampdown on waste criminals. Called Operation Rooster, the investigation targeted sites across South-East England that are known, or suspected of, operating illegally.

However, others believe the renewed funding might not be enough.

“Waste crime is an increasing problem, which is undermining the great work going on across the sector,” adds Read. “It is imperative that more staff, time and effort are put into tackling all forms of waste crime from illegal dumping and unlicensed carriers to illegal exports and other illicit activities.

“£20 million is perhaps more than was expected and this is a welcome fund to help address the problem. But is it enough? I guess we will know in about six months or so.”

Last but not least in the spending review triple whammy for waste, after Defra and waste crime, was the Renewable Heat Incentive (RHI).

The chancellor said the funding for the RHI will be increased to £1.15 billion in 2012 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”.

Alon Laniado, investment director at Eternity Capital, says this represents “a drop of almost 40% against the original plan”.

He adds: “Whether or not this will be sufficient to fund new anaerobic digestion (AD) biomethane to grid facilities depends on how much of this budget has been committed to existing facilities and on the allocation of any surplus across competing - waste-derived and other - new renewable projects. Third, any subsidy allocation to new AD facilities will need to be translated into a specific tariff regime and conditions. Until these issues are clarified in the coming weeks or months, I do not anticipate a surge in investment in new AD biomethane projects against the slowdown experienced in recent months.”

Twice as much

DECC’s innovation programme will also receive double investment from the government, potentially leading to more commitment on seed funding for new renewable energy technologies.

The Renewable Energy Association (REA) also remained sceptical over the increased RHI funding.

“We still have a large challenge in hitting our renewable heat targets, and the RHI alone won’t achieve it. Heat networks, energy efficiency and Green Gas still have a large part to play,” says Dr Nina Skorupska, chief executive of the REA.

Like others, Skorupska uses the phrase that the “devil will be in the detail”. And it’s the exact detail of these cuts that will be the next important part of the public cuts story.

For the waste industry, the spending review could be called redistribution of finance: Defra will be doing more for less while the EA’s waste crime fighting habits will have more resources.


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