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The next UK government should prioritise a one-year spending review ahead of a December planning “cliff-edge”, a think-tank has warned.
The Institute for Government has cautioned in a report published on Thursday that departmental, local authority and devolved administration expenditure beyond next spring is mired in a level of uncertainty unseen for decades.
The upcoming general election, which is expected later this year, will be closer to the date that current government budgets are set to expire — April 2025 — than at any other point in the past 40 years, the think-tank found.
No government since at least 1998 has left it later than November to set spending plans for the following financial year. The IfG has identified December as a “cliff edge” for departmental budgets, warning that completing a spending review any later would “lead to high levels of instability”.
Whitehall budgets were last drawn up for a three-year period in 2021. Pressure has been mounting on the Treasury since last year to conduct a new multiyear review, to grant departments more certainty about their funding in the years ahead.
“There is already a risk of delayed and inefficient spending on services and projects. An autumn polling day could leave just weeks to set spending plans. A winter election could land the next government in uncharted territory from day one,” the IfG said.
The think-tank is urging the next government to conduct two spending reviews in the next five-year parliament — an urgent one-year spending round to allocate budgets for 2025/26, completed by the end of this year if possible, followed by a comprehensive multiyear spending review, completed by next autumn.
Chancellor Jeremy Hunt confirmed at the Budget in March that the next spending review would not take place until after the upcoming general election. However, he admitted later that month that the spending review could face a crunched timetable if the general election did not take place until October.
“This particular spending review has to be completed before next April, when the next financial year starts. If the general election is in October, that will mean it is very tight,” Hunt told the House of Lords economic affairs committee.
The latest possible date the general election can be held is January 28 2025.
A series of tough spending choices lie ahead. The IfG calculated that government spending commitments on the NHS, schools, childcare, international development and defence mean expenditure is set to fall in other areas by 2.6 per cent per year in real terms over the next four years. Other economists have predicted that even deeper cuts to unprotected departments will be required.
Hunt insisted that the Tories were already thinking about the most important elements of the next spending review, including how to improve productivity in public services, and the investment needed to avoid cuts “in the services valued by the public”.
“With budgets set to expire in March, government finances are facing exceptional and potentially damaging uncertainty,” said Olly Bartrum, senior economist at the IfG.
“It is essential that both politicians and the civil service begin preparations for a rapid spending round to set budgets for the next financial year within months or, in the case of a late election, weeks of the new government taking office.”
A Conservative insider said no decisions had been made about the format of the next spending review.
The Labour party and the Treasury have been contacted for comment.