By Francesca James

The Chief Secretary to the Treasury announced that four Departments have agreed to reductions in unfunded spending commitments totalling £1.5bn.

As set out in the Chief Secretary’s statement to Parliament on 17 June, the Government had identified inherited spending plans whose funding was reliant on underspending across Government through the End Year Flexibility (EYF) system or additional funding from the Reserve.

The Government does not believe it was realistic to expect that underspending on the scale necessary to meet all of these commitments would have occurred. The urgent remedial action taken today will help ensure that there is no additional borrowing this year and that there is sufficient contingency in the Reserve to meet any unexpected pressures that might arise over the course of the year.

The Treasury worked constructively with Departments to examine the detail of these unfunded commitments, and four Departments have agreed to reduce their claims by the amounts below:

Department for Education (DfE): £1 billion

Department for Business, Innovation and Skills (BIS): £265 million

Department for Communities and Local Government (CLG): £220 million

Home Office (HO): £55 million

Total: £1.54 billion

As this funding was never in departmental budgets, the Departmental Expenditure Limits (DELs) of these Departments will remain the same. The Departments will provide more detail on how they are managing these reductions in additional funding, by cancelling or re-prioritising spending plans that are not affordable within their existing budgets, and through better financial management.

The action taken today has significantly reduced pressure on the Reserve. In line with standard practice, any remaining EYF and Reserve deals for all Departments will remain under review until later in the financial year, when likely departmental underspending figures for 2010-11 will become clearer. Final departmental allocations of EYF and Reserve funding will be determined on the basis of need, realism and the fiscal position, and announced at the time of the Spring Supplementary Estimates.

The Government will meet the previous Government's EYF commitments to the devolved administrations, including those in the financial package agreed with the Northern Ireland Executive to support the devolution of policing and justice powers.

Chief Secretary to the Treasury, Danny Alexander said:

"The previous Government committed to spending money it simply did not have, but this Coalition Government has taken action to address this serious situation. The decisions have not been easy, but the understanding and cooperation of my Cabinet colleagues has enabled us to act swiftly to ensure that the nation can live within its means.

“The reality is that these unfunded spending promises should never have been made, because the money was never there to pay for them. We did not make this mess, but we are cleaning it up.”