Background to the 2020 Spending Review
On 25 November 2020, the Chancellor of the Exchequer will set out the Government’s spending plans for 2021/22 in a Spending Review. This briefing covers the process of carrying out a Spending Review and summarises the current levels of public spending, and looks at what we can expect to be announced concerning spending on public services and infrastructure.
Spending Reviews typically take place every two to four years, and set spending limits for each Government department for each year of the Review period. The most recent multi-year Spending Review took place in 2015.
This Review was originally intended to cover three years, and an ‘envelope’ of Government-wide spending for this whole period was set out in March 2020. However, because of the uncertainty caused by the Covid-19 pandemic, the Review will now cover only a single year and the ‘envelope’ will not apply.
Spending levels increased in real terms towards the end of the 2015 Spending Review period, and increased again in the 2019 Spending Round. This reversed a trend of spending cuts in previous years. Departments have not all seen the same changes in spending, with some having seen steady increases and others remaining below the level of real-terms funding they were receiving in 2015.
The ongoing Covid-19 pandemic has resulted in greatly increased Government spending, with most estimates placing the total increase at around £200 billion so far.
The Government has made some announcements about what we can expect in this year’s Spending Review. The three areas it will focus on are employment, public services and infrastructure. We can also expect to see some decisions made about funding allocations, as well as updated block grants to the devolved administrations via the Barnett formula.
The Office for Budget Responsibility (OBR) will publish updated economic and fiscal forecasts on the same day as the Spending Review. These should provide updated totals of Government spending so far during the pandemic, as well as showing the impact of the new plans on total spending.