Spending review framework

posted on 10 June 2010, updated on 10 June 2010

The Treasury has announced details of how the next spending review will be conducted. The spending review will set spending limits for every government department for the period 2011/12 to 2014/15. The timetable and process are set out in the Spending Review Framework, published on 8 June.

Nationally, public spending is 48% of GDP, but only 37% of this is properly funded by taxation, so the budget deficit is 11% of GDP. Based on the previous government's plans, the cost of this debt would reach £73.8 billion per year in 2014/15, compared to £20.1 billion in 2005/06. The government considers that rapid and drastic action is needed to reduce the deficit, so avoiding interest rate increases and other pressures. Around 20% of the required reduction in the deficit will be by tax increases, and 80% by reducing spending.

On 14 June, the new Office for Budget Responsibility will produce its independent assessment of the growth forecast and other forecasts. The Emergency Budget will follow, on Tuesday 22 June. It will:

• 'set out the overall mandate for bringing the deficit under control, against which the Office for Budget Responsibility will judge the Government's fiscal policy'
• 'set the overall envelope for spending, but it will not allocate spending between departments. That is what the Spending Review this autumn will address.'

The Spending Review Framework sets out how the review will:

• require departments to submit their initial plans to deliver their priorities before the summer recess and demonstrate that they meet a tough new set of criteria to deliver value for money. The criteria cover questions such as: is the activity being funded essential to the government's priorities, does the government need to fund the activity, and can it be provided more efficiently, or by non-state providers;
• start a period of external engagement between the government and all parts of society;
• establish a new Star Chamber chaired by the chancellor and chief secretary to ensure that the government challenges every department's spending plans;
• establish a Spending Review Challenge Group of experts - from within government and outside - to act as independent challengers and champions for departments throughout the process;
• require each secretary of state to appoint a minister with specific responsibility for driving value for money across their department, identifying savings opportunities and challenging spending;
• comprehensively examine areas such as social security, tax credits and public service pensions as part of the process;
• end the previous administration's Public Service Agreements and instead ask departments to publish business plans.

 The spending review is due to conclude in the autumn.

Related links:

• Spending Review Framework