Written by Aimie Stone, Senior Economist at ADS
The Institute for Government (IfG) and Institute for Fiscal Studies (IFS) held a briefing this week to discuss the impending Spring Statement and Comprehensive Spending Review 2019. The Spring Statement has now been scheduled for 13 March 2019 but there has been little coverage given to when we might expect the Spending review.
At the 2018 Autumn Budget, the Office of Budget of Responsibilities (OBR) forecast for the fiscal outlook was set to improve by around £18 billion a year by 2022–23, but the OBR’s forecast was, and still is, predicated on a smooth Brexit.
As we approach key dates in March, there is still too much uncertainty around when exactly the UK will leave the EU and around the ‘type’ of Brexit that will happen which will undoubtedly impact the OBR’s ability to provide an accurate or durable forecast. What happens between now and 29 March will dictate the Chancellor’s ability to set future spending intentions and the size of the spending envelope.
Whenever it does take place, the Spending Review will need to cover expenditure for years beyond 2019-2020. In the meantime, the Bank of England has revised down UK GDP growth projections for the UK for 2019 and 2020. The Government need to use both the Spring Statement and the Spending Review to set out plans that are consistent with their aspirations for public services.
What we know already:
- Tax burdens are high but set to rise even though receipts currently exceed spending.
- Day-to-day spending is back to pre-crisis levels but relatively flat and £10 billion less than 2010.
- Several spending commitments already made that will ultimately constrain the Spending Review:
- NHS England’s day-to-day budget set to increase by £20.5 billion by 2023-24.
- Commitment to continue to spend at least 2 per cent of GDP on Defence.
- Commitment to continue to spend 0.7 per cent of Gross National Income on overseas aid.
What this means:
- For Government to deliver on these intentions there will likely be further cuts in departmental spending ahead as the Autumn 2018 budget is not big enough to deliver all this spending.
- Departmental spending cuts will likely occur in the unprotected areas, (not NHS, Defence or aid).
- Even though borrowing is fairly cheap right now, it is also relatively ‘low’, Treasury will have concerns around the size of debt and any increase in the overall debt to GDP ratio.
A disorderly Brexit would eventually require additional policy levers to be pulled which could see public sector borrowing rise in the short term. Longer term however, the Chancellor’s room for manoeuvring will be constrained when it comes to the Spending Review.