At its first multi-year Spending Review on 11 June, the
government will set day-to-day departmental budgets over the next
three years and investment budgets over the next four. Tough
choices are unavoidable.
Even on government investment, where spending is set to be
maintained at high levels by recent UK standards, uncomfortable
trade-offs loom. The March Spring Statement (implicitly)
promised all of the planned real-terms increase in capital
funding over the next four years to defence. While
capital funding for other areas – such as transport, science, net
zero, hospitals, schools and prisons – has increased sharply last
year and this, and will be maintained at well above the
pre-pandemic level, it will no longer increase year on year.
Given commitments on defence, increasing capital funding for one
department will mean a funding cut somewhere else. Not
everything can be a priority for further increases.
For day-to-day public service funding, a huge amount
depends on the generosity of the NHS funding settlement.
Increasing health funding at anything like the historical average
rate (or the growth rate at last year's Spending Review) would
mean imposing real-terms cuts on other ‘unprotected' departments
to stay within the overall spending envelope. This will be
challenging, given that the government has strong ambitions to
improve performance in many of these areas – for example, in
criminal justice. Yet increasing health funding by much less
could prove incompatible with the government's ambitions for
meaningful improvements in hospital waiting times and service
performance, as well as with delivering the NHS workforce plan.
This is, in some sense, the central trade-off for the
Spending Review – one that would only become more acute
if the government decides that defence spending needs to rise
further or faster than currently planned.
These are among the findings of a new pre-Spending-Review IFS
comment, which examines in more detail the key choices around
health and defence funding, the cuts facing ‘unprotected' areas,
productivity improvements, public sector pay and capital
investment.
Bee Boileau, a Research Economist at IFS and an author of
the comment, said:
‘At the Spending Review, the government faces some unavoidably
tough choices, particularly as after turning on the spending taps
last autumn, the flow of additional funding is now set to slow to
more of a trickle. Take capital spending: government investment
is set to be sustained at historically high levels in the coming
years, but most of the increase happened last year and this year,
and it looks as if all of the remaining increase in funding over
this parliament has already been allocated to defence.
Simultaneously prioritising additional investments in public
services, net zero and growth-friendly areas within this envelope
will be impossible. Decisions here, and elsewhere at the Spending
Review, will give us a clear sense of the government's true
priorities.'
