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How does a Spending Review work?

How does a Spending Review work?
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On Wednesday 25 November, Chancellor Rishi Sunak will provide details of the 2020 Spending Review. This year is a big one. With the coronavirus pandemic changing the landscape of public finances, there will be a lot of attention on how this government plans to deliver on its spending policies.

What goes on in Westminster may feel quite removed from our day-to-day lives. But the allocation of funding to different public services affects everyone who uses them. So, if you want to know how the 2020 Spending Review could affect you, read on.

What is a Spending Review?

First things first, what is a Spending Review? Basically, it is an exercise that determines how much gets spent on public services. The government decides what money is allocated to things like the NHS, schools or roads.

So it affects anyone who uses public services, which, unless you live off grid, down a private road and never visit a doctor, includes you.

Why is this year different?

It is safe to say that 2020 has changed everything. The coronavirus outbreak has meant that government spending has needed to increase dramatically.

To put this in perspective, government borrowing for this financial year was expected to be £55bn. The figure is now £215bn, and it’s expected to get as high as £370bn by the end of the year.

So yes, the government is already spending on areas to support the economy and get through the pandemic. But it can’t forget about other areas of public life.

The Spending Review this year will be different because it will only cover the period from April 2021 to April 2022. Usually, Spending Reviews provide the budget for the next three to four years. But considering the current uncertainties surrounding the pandemic, the chancellor has chosen to focus on short-term spending this year.

What can we expect to see?

Some details of the 2020 Spending Review have already been released. And there is a lot of speculation about other areas. Let’s take a look at the main areas of spending:

NHS

It is expected that there will be £133bn for the NHS in England* in the Spending Review. In addition to this, the chancellor will reportedly provide an extra £3bn to tackle a backlog of non-coronavirus-related treatments.

There have been rumours of a public sector pay freeze. But NHS workers may just manage to avoid this. We’ll have to wait and see on Wednesday.

Schools

Schools in England* are expected to get an extra £2.2bn in this year’s Spending Review, taking the total spend up to £49.8bn. This is mainly for catch-up initiatives for students. As every parent who tried homeschooling knows, these initiatives are likely to be essential over the next year.

Defence

This was the biggy that was announced last week. Defence spending will be £16.5bn over the next four years, with a focus on the creation of a national cyber force.

Foreign aid

The government has already committed 0.7% of the national income for foreign aid. However, due to lockdown measures and the recession, the national income will be a lot lower. This will mean that the foreign aid package will be reduced.

Others

There is a lot that we will only find out about once the Spending Review is actually announced.

There is expected to be a focus on trying to improve conditions in the North of England. We should also expect to see some funds allocated to deal with Brexit. And there may be some climate initiatives announced.

How does this affect me?

As we have already mentioned, if you use a public service, then you will be affected by how much is spent on it.

But in terms of your own personal finances, the biggest impact is likely to be higher taxes in the future.

The UK government currently has a deficit, meaning that it owes more money that it brings in. So it has to borrow in order to spend on things like schools and the NHS.

The more it has to borrow, the more it needs to bring in through taxes. So due to the high level of government spending this year, we can expect to see taxes increased in the future.

If you are worried about an increase in tax and what that will do to your monthly income, consider making a monthly budget. You’ll be able to see what you have coming in and whether you can save anything.

You could set up an easy access savings account and build an emergency fund you can dip into if you have any unexpected costs.

*Spending for Scotland, Wales and Northern Ireland will be different. This is because many aspects of government activity in these countries are controlled by the devolved administrations.

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