£5bn savings as foreign aid budget is frozen indefinitely

CUTS to foreign aid will fund a modest boost for schools and hospitals as part of plans to squeeze public spending.

Jeremy Hunt said the foreign aid budget would be frozen indefinitely at 0.5 per cent of GDP, despite a Tory manifesto vow to keep it at 0.7 per cent.

The move is set to save more than £5 billion a year, which will be used as a cash injection for the NHS and schools.

The Chancellor yesterday pencilled in total spending cuts of just over £30 billion by 2028. But foreign aid was the only Budget cut in the short term, with the remainder of the cuts pencilled in for the three years from 2025, after the next General Election.

The Office for Budget Responsibility said the cut in aid spending would ‘largely offset’ small increases in funding for health, education and social care. And the Treasury said public spending would actually rise for the next two years, with sources saying the cash boost provided by policies like the energy price guarantee would dampen the impact of recession.

Mr Hunt said that all government departments would be asked to find ‘efficiencies’ to maintain public services in the face of inflation.

The Chancellor said the Government would continue to ‘grow public spending, but we’re going to grow it slower than the economy’. Overall departmental spending will grow one per cent a year in real terms from 2025.

But with health and education likely to have their budgets protected, the OBR said other departments would face realterms cuts averaging 0.7 per cent a year. The decision to delay cuts until after the next election will make public spending a key election battleground – but also raised questions about whether the public sector squeeze will ever happen.

The Institute for Fiscal Studies said that Mr Hunt’s post2025 spending plans ‘stretch credulity’. Director Paul Johnson said he would be ‘surprised if they ever happen’, adding that ‘delaying all of the difficult decisions until after the next general election does cast doubt on the credibility of these plans’.

Mr Hunt fudged a decision on defence spending, which Defence Secretary Ben Wallace has pushed to be increased to three per cent of GDP by 2030.

He said that both he and Rishi Sunak ‘ recognise the need to increase defence spending’.

But he said a decision on final spending levels would have to wait until the Government’s ‘integrated review’ of security threats has been updated.

In the meantime he pledged only to spend enough on defence to maintain the Nato commitment of 2 per cent of GDP.

The Treasury is reported to have pencilled in public sector pay rises averaging two per cent in the coming years as ministers try to bear down on inflation.

Mr Hunt did not mention the issue yesterday, but Treasury sources confirmed that pay awards would have to be funded from within departments’ existing budgets. Mary Bousted, joint general secretary of the National Education Union, said: ‘If benefits and pensions are both to rise in line with inflation, then the same should also be true for pay.’

‘Surprised if they happen’