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A think tank has warned that the next UK government should prioritize a year-long spending review before setting out “cliff edge” planning in December.
The Institute for Government warned in a report released Thursday that departmental, local and devolved government spending beyond next spring faces a level of uncertainty not seen in decades.
The upcoming general election, expected later this year, will be closer to the date current government budgets expire – April 2025 – than at any time in the last 40 years, the think tank found.
Since at least 1998, no government has allowed itself until November to set spending plans for the following fiscal year. The IfG has described December as a “cliff edge” for departmental budgets and warned that conducting a spending review later “would lead to high levels of instability”.
Whitehall’s budgets were last drawn up for a three-year period in 2021. Since last year, pressure has been growing on the Treasury to conduct a new multi-year review to give departments more certainty about their funding in the coming years.
“There is already a risk of delayed and inefficient spending on services and projects. A fall election day could leave just a few weeks to set spending plans. A winter election could take the next government into uncharted territory from day one,” the IfG said.
The think tank is calling on the next government to undertake two spending reviews in the next five-year parliament – an urgent one-year spending round to allocate 2025/26 budgets, to be completed if possible by the end of this year, followed by a comprehensive multi-annual spending review, completed by next autumn .
Chancellor Jeremy Hunt confirmed when presenting the Budget in March that the next spending review would not take place until after the upcoming general election. However, later that month he admitted the spending review could be given a tight timetable if the general election were not held until October.
“This special spending review must be completed before April next year when the next financial year begins. “It will be very close when the general election is held in October,” Hunt told the House of Lords Economic Affairs Committee.
The last possible date for the parliamentary election is January 28, 2025.
A series of difficult spending decisions lie ahead. The IfG calculated that government spending commitments on the NHS, schools, childcare, international development and defense will cause spending in other areas to fall by 2.6 per cent a year in real terms over the next four years. Other economists have predicted that even deeper cuts will be needed in vulnerable departments.
Hunt insisted the Tories had already considered key elements of the next spending review, including how to boost productivity in the public sector and the investment needed to avoid cuts “to services valued by the public”. .
“As budgets expire in March, government finances face extraordinary and potentially damaging uncertainty,” said Olly Bartrum, senior economist at IfG.
“It is important that both politicians and the civil service begin preparing for a rapid round of spending within a few months or, in the case of a delayed election, weeks after the new government takes office to set budgets for the next financial year.”
A Conservative insider said no decisions had yet been made on the format of the next spending review.
The Labor Party and the Treasury have been contacted for comment.