Spending reviews: a short history

As chancellor Rishi Sunak sets out his latest spending review, Colin Talbot digs into the history of this deceptively simple fiscal event
A minister walks down Downing street with his red box

By Colin Talbot

27 Oct 2021

What is a Spending Review? Simply it is a statement, by HM Government, of what it intends to spend over the next (usually) three years. And what it will spend it on.

Sounds deceptively simple? Deceptive  is the operative word, because it turns out to be anything but simple or straightforward.

Things can only get better

In 1997 New Labour, led by Tony Blair and Gordon Brown, swept to power. One of their key promises before the election was that they would stick to the spending plans set out by Conservative chancellor Ken Clarke for their first couple of years in office.

This was controversial because Clarke’s Budget in November 1996 set out plans cut public spending for three years ahead. Clarke did this – he later admitted – so he could justify promises of tax cuts in the upcoming election. He has also said he didn’t expect Labour to stick to his forward plans, and wouldn’t have done so himself if the Tories had won.

Labour did stick to his plans for spending up to, and including, 1998-99. But they announced a Comprehensive Spending Review that would be published in 1998 and take effect for 1999-2000 until 2001-2002. Which they duly did.

Labour went on to publish three 3-year Spending Reviews (SR) in 2000, 2002, and 2004. And then another “comprehensive” SR in 2007.

They did not publish another SR in 2010 when it was due and were replaced by the Coalition government. Who, much to the surprise of many, decided to continue with the SR innovation.

Three year plans?

Back in 1961, the Plowden Report on the control of public expenditure had recommended that Budgets include a 5-year forward look at probable spending in certain areas.

In a prophetic dissection of the Report, Bill McKenzie, a politics professor at Glasgow, paraphrased this at the time as “let us at least have a general [idea] … for expenditure over five years, the first year clear, the four later years shading off into impenetrable fog. This will make us all feel better about it.”

By Ken Clarke’s 1996 budget, five years had reduced to three, but the “shading off into impenetrable fog” remained. No-one really took the forecasts for future years in Budgets seriously and no-one ever kept to them. Except Gordon Brown.

Labour’s new SRs were meant to be different. They really were supposed to be three-year plans in which departmental spending was fixed solidly. There was some flexibility to bring forward, or push back, ‘end year’ spending but over the three years they were supposed to stick to their spending totals.

The only major exception was annually managed expenditure on benefits, pensions, and so on, which could not be planned or controlled in the same way.

Plan meets reality

As John Lennon famously said – though he apparently didn’t invent the saying - “Life is what happens while you are busy making other plans.”

The eagle-eyed amongst you will have already spotted something odd. New Labour was promising fixed three-year plans, but the gap between the first four SRs was only two years: 1998; 2000; 2002; 2004.

The official line on this oddity was that SRs were “three-year plans reviewed every two years”. Which made the “plan” for year three of any SR disappear into the fog again. It would be superseded by the next SR.

And then the next comprehensive SR (2007) was allowed to run for the full three years. So what was going on?

The immediate answer was simply politics. SR 2000 was brought forward a year so it would be before the 2001 general election (GE). SR 2007 was pushed back to 3 years and several months to allow Gordon Brown to assume office as prime minister. Labour’s SR 2010 never happened because they didn’t want it before the general election this time.

After 2010 although SRs continued they became even more irregular under the Coalition and Conservative governments: there were SRs in 2010; 2013; 2015; and 2019.

There is a second, important, reason for this irregular pattern is SR duration (2,2,2,3,3,2,4, and 2 years). It happens because it can. Like many other reforms of government in the UK, SRs have no standing in the constitution or laws. Governments can change them by administrative fiat – unlike in most other advanced democracies that have legally fixed budgetary cycles.

The time horizon for SR 2021 seems to be three years (with a bit longer for some aspects of spending). But when the next general election could happen in 2022, 2023 or 2024 I wouldn’t place any bets on how long it actually lasts? And there’s plenty of other ‘events’ that could derail things.

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Economy Finance
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