The upcoming Spending Review has the potential to be one of the
defining domestic policy moments of the parliament. We will learn
how the government has chosen to prioritise different public
services. But that won't be the end of the difficult choices
faces. The Autumn Budget will
need to confront the implications of shocks to the global trading
environment and a potential downgrade to the outlook for economic
growth.
Our interactive ‘Be the
Chancellor' tool illustrates the key choices and
fiscal challenges ahead. The tool, built by IFS researchers in
partnership with Nesta, has been enhanced with new features, and
updated to reflect this government's changes to tax, spending and
the fiscal rules. It demonstrates that:
- Staying within published plans for the overall level of
departmental spending at the upcoming Spending Review will almost
certainly require cuts to some departmental budgets between
2025–26 and 2029–30. The decision of what to give the NHS is by
far the most consequential in budgetary terms.
- Plans can easily be blown off course. Even small changes to
the outlook for growth or interest rates would be enough to
eliminate the fine margin the Chancellor has left against her
‘non-negotiable' fiscal rules.
- If the government wanted to raise large sums in tax revenue –
for instance, to allow for higher public spending without
additional borrowing – it would be exceedingly difficult to do so
without touching one of income tax, National Insurance
contributions or VAT.
There are, as ever, a huge number of choices to be made, and
myriad options available. To explore them for yourself, see the
‘Be the Chancellor' tool here.
Helen Miller, incoming Director of IFS, said:
‘Labour started the parliament by turning on the spending taps,
adding some £60 billion to the spending plans for 2025–26
inherited from the previous government, including £40 billion for
public services. In coming years, growth in overall public
spending will slow to more of a dribble. Given commitments on
health and defence, the question is not whether some departments
will face funding cuts, but which departments and by how much.
The Spending Review will reveal, when push comes to shove, which
public services this government wants to prioritise. The choices
made now could define the parliament.'
