Sunak sets date for Spending Review – and issues pay warning

Three-year settlement for departments and agencies will come alongside Autumn Budget
Chancellor Rishi Sunak with last year's Spending Review blue book Credit: Xinhua News Agency/PA Images

By Jim Dunton

07 Sep 2021

Chancellor Rishi Sunak has named 27 October as the date for his first multi-year spending review and revealed he will also deliver an autumn budget alongside the public finance plans.

In a letter setting out the plan for the review, Sunak fired a warning shot on civil service pay over the three-year settlement period, telling secretaries of state that there is an ongoing need to “ensure that public sector pay growth at SR21 retains broad parity with the private sector and is affordable”.

HM Treasury said the settlement, which will confirm departments’ capital and revenue budgets from 2022-23 to 2024-25, would mean core departmental spending will have grown by nearly 4% a year in real terms, on average, by the end of the parliament.

The forthcoming spending decisions have also been trailed as requiring reversals to the increase in civil service headcount that has taken place over the past five years. Meanwhile, think tank the Institute for Government has warned that departments will require extra funding to keep pace with ongoing coronavirus-related impacts including testing, reduced transport revenue and backlogs in hospital  care and court services.

Confirming the Spending Review and budget date, Sunak said the government had “delivered on an unprecedented scale” to protect people’s jobs and livelihoods since the start of the pandemic and that October 27 would be an opportunity to lay the ground for the nation to “Build Back Better”.

“Despite the worst economic recession in 300 years, we have not only got people back into work through the Plan for Jobs but continued to deliver on the priorities of the British people,” Sunak said.

“At the Spending Review later this year, I will set out how we will continue to invest in public services and drive growth while keeping the public finances on a sustainable path.”

Continued need for pay restraint

In a letter to secretaries of state confirming the submission deadlines for departments as part of the spending review process, Sunak also referred directly to the need to keep a tight rein on public-sector pay – despite the freeze that most civil servants were subjected to in last year’s Spending Review.

“Those working in the public sector have, on average, better remuneration packages than those in the private sector, with Covid also demonstrating the significant value of job security,” Sunak told cabinet colleagues.

“For reasons of fairness and sustainability of the public finances, we must continue to ensure that public sector pay growth at SR21 (including all elements of earnings growth and pay drift) retains broad parity with the private sector and is affordable.”

Civil servants earning £24,000 a year or more have seen their pay frozen in 2021-22, aside from bespoke deals such as the HM Revenue and Customs settlement worth an average of 13% to staff over three years. NHS staff and those earning below the £24,000 mark were not subjected to the freeze.

Day-to-day spending will hit £440bn by 2025

The Treasury said the Spending Review would see core departmental spending follow the path set out in Sunak’s March Budget, with the addition of net revenue raised by the new Health and Social Care Levy and the increase to dividend tax rates – which equate to around £12bn a year.

It said that day-to-day government spending would increase to £440bn a year by 2024-25, which the department said represented a hike of nearly £100bn a year in cash terms since 2019.

HM Treasury said the Spending Review would also see a “step change” in capital spending, with £600bn set aside for investment over the course of five years. We will also deliver a step-change in capital investment, as set out at Budget 2021. It said the figure represented “the highest sustained level of public sector net investment as a proportion of GDP since the late 1970s”.

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