Background to the 2015 Spending Review and Autumn Statement

The Chancellor of the Exchequer will present the joint 2015 Spending Review and Autumn Statement to Parliament on 25 November 2015.

Spending Review and the public finances

The Spending Review will set budgets for government departments and the devolved administrations for each financial year from 2016/17 to 2019/20. Day-to-day spending is set to fall by £18 billion or 6% between 2015/16 and 2019/20 in real terms, meaning that many departments will see budget reductions.

Some departments are protected from spending reductions, including the NHS, some schools spending, defence spending and the international development budget. This means that other departments will see larger reductions, in many cases on top of reductions seen over the previous Parliament.

Reducing departmental spending forms part of the Government’s plan for shrinking the budget deficit – the difference between what the public sector spends and receives in taxes. Despite falling during the previous Parliament, the budget deficit remains high, and was £90 billion in 2014/15. The Government aims to eliminate the deficit by 2019/20. The Office for Budget Responsibility’s (OBR’s) latest forecast put the Government on course to meet its target.

Public sector net debt – the stock of borrowing arising from past deficits – remains high by international standards at around 80% of GDP.

Benefits and tax credits and other potential announcements

Having been defeated in the House of Lords, the Chancellor is committed to announce revised plans for changes to tax credits and benefits. Plans announced in the Summer Budget 2015 resulted in £12 billion of savings in 2019-20, around 45% of which were savings from tax credits – affecting around 3.3 million in-work families.

The OBR will report on whether it expects relevant welfare spending to meet or exceed the welfare cap set by the Government for the forthcoming year. We may also expect an update on consultations carried out over the summer on pension flexibilities.

Economic situation

The Chancellor makes his statement at a time of healthy economic growth.

Strong consumer spending is expected to support growth in the short term, as real (inflation-adjusted) household incomes rise: this is due to the combination of a recent acceleration in wage growth and near-zero inflation. Risks to the outlook come chiefly from a slowdown in emerging economies and if productivity growth fails to improve as is expected.

The labour market continues to improve: the unemployment rate is near its pre-recession level and a record-high proportion of the working-age population are in work. Average earnings growth has accelerated and earnings are now growing faster than during the previous five years. Nevertheless, average earnings growth is still slower than it was before the recession.