Tom is Senior Economist at the Institute for Government and is writing in that capacity.
Despite even greater uncertainty this year, the government has decided to hold a spending review this year rather than repeating the one year spending round from last year. We view this as a mistake. The government will be setting spending plans without a clear sense of how the economy (and therefore tax revenues) will evolve over the next three years.
The CSR will set day-to-day budgets for 2021/22, 2022/23 and 2023/24, the three full fiscal years before the next scheduled election in May 2024, and capital budgets extending to 2024/25. As in previous years, the CSR will mainly focus on Departmental Expenditure Limits – the part of departments’ budgets that are directly controlled by Whitehall. This may include limits on public sector pay. We expect other areas of spending (e.g. social security) to be out of scope.
Ordinarily, a CSR would begin with a total ‘spending envelope’ assigned, setting out the total size of the spending pie that must be divided between departments and public bodies. In March, the government did set a new envelope for the next few years which implied big real-terms increases in total spending and would have allowed for budget increases across the board. However, when announcing the CSR they stated (not unreasonably) that the situation had changed since March and cited the March envelope as ‘provisional’. They have committed only to increasing departments’ budgets in real terms. This could mean a much reduced spending total – the March budget implied a £17bn real-terms increase in spending for ‘unprotected’ departments (spending outside of health, overseas aid and defence) between 2020/21 and 2023/24.
Despite being only a one-year settlement, the text of the SR2019 document emphasised the importance of a focus on outcomes as spending is decided, rather than focusing excessively on inputs. This is a weakness that previous IfG work has noted, and the Treasury may therefore look more kindly on submissions that explain clearly how additional inputs will translate into targeted outputs. However, it remains to be seen how much influence this approach has in practice. For example, the government continues to make pledges such as ’20,000 more police officers’ which are input focussed.
The precise timeline for the CSR has not been confirmed. The submission deadline is 24th September. We then expect an announcement before the end of the year, possibly in conjunction with a budget but more likely in a separate fiscal event in advance. This is what the government did for the 2015 spending review. We should receive more details about this timeline in due course.