Decisions over NHS and defence will dominate the Spending Review

At its first multi-year Spending Review on 11 June, the government will set day-to-day departmental budgets over the next three years and investment budgets over the next four. Tough choices are unavoidable. 

Even on government investment, where spending is set to be maintained at high levels by recent UK standards, uncomfortable trade-offs loom. The March Spring Statement (implicitly) promised all of the planned real-terms increase in capital funding over the next four years to defence. While capital funding for other areas – such as transport, science, net zero, hospitals, schools and prisons – has increased sharply last year and this, and will be maintained at well above the pre-pandemic level, it will no longer increase year on year. Given commitments on defence, increasing capital funding for one department will mean a funding cut somewhere else. Not everything can be a priority for further increases. 

For day-to-day public service funding, a huge amount depends on the generosity of the NHS funding settlement. Increasing health funding at anything like the historical average rate (or the growth rate at last year’s Spending Review) would mean imposing real-terms cuts on other ‘unprotected’ departments to stay within the overall spending envelope. This will be challenging, given that the government has strong ambitions to improve performance in many of these areas – for example, in criminal justice. Yet increasing health funding by much less could prove incompatible with the government’s ambitions for meaningful improvements in hospital waiting times and service performance, as well as with delivering the NHS workforce plan. This is, in some sense, the central trade-off for the Spending Review – one that would only become more acute if the government decides that defence spending needs to rise further or faster than currently planned. 

These are among the findings of a new pre-Spending-Review IFS comment, which examines in more detail the key choices around health and defence funding, the cuts facing ‘unprotected’ areas, productivity improvements, public sector pay and capital investment. 
IFS researchers will present their analysis of the outlook for the Spending Review at 11am on Monday 2 June and will be joined by Stuart Hoddinott from the Institute for Government. To register for this online event, click here. 

Bee Boileau, a Research Economist at IFS and an author of the comment, said:

‘At the Spending Review, the government faces some unavoidably tough choices, particularly as after turning on the spending taps last autumn, the flow of additional funding is now set to slow to more of a trickle. Take capital spending: government investment is set to be sustained at historically high levels in the coming years, but most of the increase happened last year and this year, and it looks as if all of the remaining increase in funding over this parliament has already been allocated to defence. Simultaneously prioritising additional investments in public services, net zero and growth-friendly areas within this envelope will be impossible. Decisions here, and elsewhere at the Spending Review, will give us a clear sense of the government’s true priorities.’