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Virus triggers new government spending review

Chancellor of the Exchequer Rishi Sunak has launched a comprehensive spending review to set the boundaries for public sector budgets from 2021 on.

23rd Jul 2020
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Revised spending review launched for 2021-4

Due for publication in the autumn, the review will set out government departments’ resource budgets until 2023/24 and capital budgets until 2024/25.

Warning of the “tough choices” ahead, Sunak needed to revise his March Budget spending plans to reflect the huge impact coronavirus has had on the economy and public finances.

While limiting public spending increases for the coming years, the review will focus on strengthening the UK’s economic recovery from Covid-19 by prioritising jobs and skills, the Chancellor said.

Some of the increases announced in March for lower priority departments will be cut to prioritise areas such as the NHS, schools and police. However, Sunak said the government will “honour the commitments made in the March Budget to rebuild, level up and invest in people and places, spreading opportunities more evenly across the nation.”

Spending doubles to £128bn

According to the Office for National Statistics (ONS), government borrowing between April and June 2020 doubled compared to 2019, reaching a record £128bn. Only in June, public sector net borrowing excluding public sector banks is estimated to have been £35.5 billion – approximately five times the amount of the same month last year.

The Office for Budget Responsibility’s fiscal sustainability report published this month shows that government borrowing in 2020 is on track to hit a peacetime record of between 13-21% of GDP.

The OBR report highlights the steps the government has taken to support businesses and individuals through the lockdown, which should help limit long-term economic scarring.

At the beginning of July, Sunak announced measures to improve the economy that would cost up to £30bn in addition to £32.9bn of planned departmental spending. In the OBR’s longer-term view, however, “It seems likely that there will be a need to raise tax revenues and/or reduce spending (as a share of national income) to put the public finances on a sustainable path.”

“Let's hold in the back of our minds that a reckoning, in the form of higher taxes, will come eventually,” said Institute for Fiscal Studies director Paul Johnson earlier this month. However, the tax rises will not happen soon, according to Johnson. “The time to pay for all this will come, but not this year and not next,” he said. 


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