Public Spending Cuts Coming but Most After Next Election in 2024

20th November 2022

The Chancellor found some additional cash for the NHS and schools over the next two years to ease the inflation squeeze those priority areas are facing. This was funded in large part by recycling £5 billion previously earmarked for increasing overseas aid spending to 0.7% of national income (instead, it will remain at 0.5%).

Beyond the end of the spending review period - which coincides with the likely date of the next election - he cut back plans for public service spending. Departments' day-to-day budgets will still grow, on average, but less quickly than previously planned. That decision alone accounts for about 40% (£21.5 billion) of the fiscal tightening announced in the Autumn Statement for 2027-28. The Chancellor also pared back plans for capital spending after 2025 (announcing a cash-terms freeze, which equates to real-terms cuts). That decision represents a further £14.8 billion tightening, relative to previous plans.

This raises three key questions.

First, can cash spending plans for the next two years really be stuck to, in the face of higher inflation? Pressure for higher pay awards, in particular, are likely to put pressure on departmental budgets.

Second, will the plans pencilled in for the years after 2025 really be implemented? Since 2015, these provisional spending totals have, in the event, been revised upwards by an average of 3.7%. Were that to be repeated, that would suggest an extra £18 billion of spending in 2027-28.

Third, if the post-2025 plans are implemented, where will the cuts fall? The Chancellor has pencilled in average real-terms growth of 1% per year for departments' day-to-day budgets. But if the NHS budget grows at anything like its historical average, and the defence and overseas aid budgets grow in line with the economy (to maintain the 2% and 0.5% of GDP commitments, respectively) then everything else could be facing cuts. For areas like local government, prisons, the police, HMRC and the courts system, that could spell a very difficult few years indeed.

Source -
https://ifs.org.uk/articles/autumn-statement-2022-response