Departments face 'uncharted territory' because of spending review uncertainty

Civil servants must be resourced to begin full planning now, Institute for Government warns
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By Jim Dunton

03 May 2024

Departments are facing an unprecedented period of financial uncertainty because of the government's decision not to hold a spending review ahead of the looming general election, think tank the Institute for Government has warned.

Current three-year settlements for departments expire at the end of the 2024-25 financial year. Although a general election before the end of summer could provide enough time for plans – particularly a one-year settlement – to be worked up in time for crucial deadlines, prime minister Rishi Sunak could delay taking the nation to the polls until January 2025.

A new paper from the IfG says failing to complete a quick-fire spending round by December will lead to "high levels of instability" because of the delay to government departments, local authorities and devolved administrations knowing what their budgets from April 2025 will be. 

It says that because the general election will now not take place until June at the earliest, any spending review will already have to take place closer to the point at which departmental budgets run out than at any time in more than four decades.

Report authors Olly Bartrum and Ben Paxton said an autumn general election could leave ministers and officials with just weeks to set spending plans, while a winter polling day "could land the next government in unchartered territory from day one".

They suggest that the next government will be best advised to conduct a rapid one-year spending review exercise for 2025-26, and then begin work on a multi-year spending review for the remainder of the parliamentary term, for confirmation in autumn 2025.

Even so, their report notes that, historically, comprehensive spending reviews can take more than a year to prepare.

An early crunch point this year is likely to be the agreement of provisional settlements for local authorities, which are usually published in November or December, allowing councils to finalise their budgets for the next financial year over the following weeks.

Bartrum and Paxton said that an "extremely accelerated" spending review process could be run after the general election – including a provisional local government finance settlement announced in advance of the full spending review.

But they said such a scenario would be "hugely destabilising for the government and its various bodies in the weeks following an election", and that prolonged uncertainty over settlements would also have "consequences".

The report authors said those negative impacts would include a lack of certainty that would limit the ability of departments to plan ahead, leading to delays in approving programmes and forcing reallocation of resources to contingency planning in case funding is stopped.

Capital spending programmes are described as being particularly badly hit by uncertainty, with the "stop-start" effect leading to delays in approval for infrastructure projects, hampering efficiency.

Bartrum and Paxton said devolved administrations and local authorities may also need to adjust their own plans for raising revenue once they know the level of funding they will receive from central government.

"Approaching a cliff edge like this presents many difficult decisions over these organisations’ work programmes – does a department, public body or local authority continue to fund their projects, with the obvious financial risk should funding be stopped, or prepare to wind certain ones down?" they asked.

"Preparing to wind down a programme takes time and resource: staff may need to be made redundant, delivery infrastructure reallocated or sold, or delivery of essential services transferred to other parts of the system. This uncertainty can put departments in a position where spending is less effective than if either ongoing funding or an end to funding had been confirmed."

Bartrum and Paxton said it is vital that the government gives the civil service its full backing to devote resources to planning for the next spending review – including where this will be helpful to the Labour Party.

"Some preparation for the spending review will already be taking place, such as strategic reviews of policy areas within departments," they said.

"However, the current government has been clear that the next spending review will take place after the next election, meaning officials do not necessarily have political cover to devote substantial resource to planning for it."

The authors said proper resourcing would allow civil servants to begin discussing reasonable spending baselines that would be needed to continue running existing services to meet future population demands and reviewing areas of spending to improve value for money.

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