An introduction to Spending Review
What is a Spending Review?
The Spending Review is a Treasury-led process to allocate resources across all government departments, according to the Government's priorities. Spending Reviews set firm and fixed spending budgets over several years for each department. It is then up to departments to decide how best to manage and distribute this spending within their areas of responsibility.
In addition to setting departmental budgets, Spending Review 2010 also examines non-departmental spending that cannot be firmly fixed over a period of several years, including social security, tax credits, some elements of local authority spending and spending financed from the proceeds of the National Lottery.
Spending Reviews have been an important part of governmental planning since the late 1990s. Prior to their introduction, departmental budgets were set on a year-by-year basis which made multi-year planning more difficult.
Spending Review 2010 covers the four years from 2011-12 to 2014-15.
The Chancellor of the Exchequer announced Spending Review 2010 on 20 October 2010.
How does the 2010 Spending Review relate to the June Budget?
The June Budget set out the overall level of public spending for the four years from 2011-12 to 2014-15. This is often referred to as the spending envelope.
Spending Review 2010 is the process through which this spending is allocated to pay for all areas of Government activity including public services, social security, and administration costs.
How are public spending levels (also known as the spending envelope) set?
The Government has to manage public spending levels against the amount of income it receives. When spending is greater than income, as at present, the Government has a budget deficit. This means the Government must borrow money. The Government must also pay interest on money it borrows.
Public spending levels were set in the June Budget by looking at how much Government can spend whilst meeting its plan to reduce the deficit, given the level of forecast economic growth and taxation.
How does the Government borrow and from whom?
The Government borrows mostly by issuing bonds known as gilts. Gilts are financial assets that pay the holder of the gilt semi-annual interest payments and a lump sum repayment of £100 at the end of the life of the gilt.
The level of interest a Government pays varies according to its credit rating. The more high risk a Government is seen to be the more interest it will have to pay.
How is this Spending Review different to previous ones?
The scale of Britain’s deficit has necessitated some tough choices about how the Government allocates spending in Spending Review 2010.
Successfully reducing the deficit requires a completely different approach. So at the 2010 Spending Review, the Government is:
- thinking innovatively about the role of government in society;
- taking decisions collectively as a Government, led by the Public Expenditure Committee of senior Cabinet Ministers appointed by the Prime Minister and chaired by the Chancellor to advise the Cabinet on the high-level decisions that need to be taken; and
- consulting widely with experts and the wider public, to get their ideas
The Government has said that its approach to these tough choices is guided by the principles of freedom, fairness and responsibility. It has also said that these choices should be supported by new and radical approaches to the provision of public services.
In addition, the Government appointed an Independent Challenge Group (ICG) of Civil Service leaders, complemented external experts, to bring independent challenge to the Spending Review process. The group’s remit is to think innovatively about the options for reducing public expenditure and balancing priorities to minimise the impact on public services.
How have you consulted with the public and what difference can the public make to the Spending Review?
The Government launched the Spending Challenge to give public sector workers and the general public the opportunity to submit their ideas on how government could get more for less and tackle the deficit.
What is the process for determining departmental settlements?
At Spending Review 2010 decisions have been made collectively by the Government. This collective approach has been led by a Committee of senior Cabinet Ministers, called the Public Expenditure (PEX) Committee. This is sometimes referred to as the Star Chamber.
The PEX Committee advised the Cabinet on the high level decisions that have been taken in the Spending Review.
Throughout the process of preparing the Spending Review, PEX Committee meetings have been supplemented by discussions between departments and the Treasury.
A Permanent Secretaries Spending Review Group also met to build the Government’s understanding of the issues, ensuring support for the overall principles and approach and discussing cross-cutting issues.
What is a Star Chamber?
The Star Chamber takes its name from an English court of law established in the 15th century in the Palace of Westminster. The court took its name from the room in which the court met.
The court was initially intended to bring prominent and powerful people to justice, where ordinary courts could not.
The term Star Chamber was used again in the 1980s for meetings between senior departmental Ministers and the Treasury to resolve spending issues.
Where can I find additional information on the Spending Review?
The Chancellor set out the Government's approach to Spending Review 2010 on 8 June 2010. The accompanying document, The Spending Review Framework set out details of the Government’s strategy for delivering the Spending Review.