The Spending Review and Autumn Budget on 27 October 2021 will contain significant decisions that will have major implications not only for the public finances, but for businesses, local communities, and individuals across the entire country.
It will also provide an opportunity for Rishi Sunak to set out how the government plans to tackle the economic issues facing the country, deliver on policy priorities and set a path for repairing the public finances.
Multiple announcements combined into one big fiscal event
The event on Wednesday comprises a series of announcements, starting with the Spending Review that will set out the spending plans for central government departments (about half of total public spending) for the three financial years commencing 1 April 2022 (2022-23, 2023-24 and 2024-25). These plans will have been based on bids submitted by each department that will have been pared back following extensive negotiations across Whitehall. They are expected to involve tough choices on current spending, but more generous amounts of capital investment.
The first year of the Spending Review will form part of the Autumn Budget, which sets out the government’s overall plans for tax, spending and borrowing for the 2022-23 financial year.
On spending, the Autumn Budget will go beyond the departmental spending plans included in the Spending Review to include welfare spending such as the state pension and universal credit, estimates for the interest payable on public debt, and the framework within which the devolved administrations in Scotland, Wales and Northern Ireland and regional and local authorities in England will set their own budgets.
On tax, the Autumn Budget is not only about the forecast for tax revenues and how they compare with spending, but also about whether the Chancellor decides to make any changes to the tax rules. This can include changes relating to the 2022-23 tax year or – in certain cases – changes that come into force immediately, as well as advance notice of changes planned for future financial years.
The Chancellor’s tax and spending announcements will be accompanied by economic and fiscal forecasts from the independent Office for Budget Responsibility (OBR), setting out projections for economic growth, tax revenues and public spending over the next five financial years (up to 2026-27). They will be keenly read, not just because of the implications for the public finances, but also because of what the OBR says about the UK’s economic prospects and about the anticipated effect of the government’s tax and spending plans on the economy.
There will also be a series of other announcements and reports published with the Spending Review and Autumn Budget, ranging from technical documents such as the formal remit to the Debt Management Office (DMO) asking it to borrow the money the government needs in the coming financial year, to major policy announcements such as the long-awaited Integrated Rail Plan, the UK Shared Prosperity Fund (the successor to EU regional development funding), and a review into post-18-years education funding.
Unlike previous eras where the contents of each Budget were treated as closely guarded secrets before the Chancellor’s formal speech to the House of Commons, the run-up to the Spending Review and Autumn Budget has seen a series of formal announcements, government press releases and informal briefings setting out many elements of what we should expect. This includes the health & social care levy announced a few weeks ago, the Net Zero Strategy launched last week that contained plans for new investment in decarbonisation, £6.9bn for local transport investment across the country, and more, although without seeing the detail it is difficult to know how much of these announcements involve ‘new money’.
Other rumours include potential changes to VAT on energy, alcohol duties, capital gains tax rates, the student loan repayment threshold, air passenger duty, minimum wage levels and tax relief on pension contributions.
Despite this, there should still be some surprises kept back for the Chancellor to announce on the day, and all the different announcements will still need to be added up to see the overall financial picture.
With thousands of pages of reports and accompanying spreadsheets expected to be published, drawing a full set of conclusions about what it all means may take some time. And some important details won’t be known for a while, for example, the important ‘devil in the detail’ of taxation measures to be included in the Finance Bill.
|2021-22||The current financial year – commencing 1 April 2021 and ending 31 March 2022.|
| 2022-23, 2023-24
|The next three financial years ending 31 March 2023, 2024 and 2025 respectively.|
| Spending Review
||On this occasion, the setting of resource and capital budgets for central government departments for 2022-23, 2023-24 and 2024-25. This includes both core departmental budgets and additional temporary spending allocations in response to COVID-19.|
|The primary fiscal event each year in which the Chancellor of the Exchequer sets out plans for tax, spending and borrowing to finance government activities for the coming financial year and discusses the medium-term outlook for the economy and the public finances. The Autumn Budget scheduled for 2020 was postponed, which is why there was also a Spring Budget in March 2021.|
|The second major fiscal event each year at which the Chancellor presents an update on the public finances. This can sometimes include new tax and spending measures.|
|Chancellor of the Exchequer||Rishi Sunak MP, cabinet minister and head of HM Treasury. Responsible for economic matters and for the public finances.|
|Minister for the Cabinet Office||Steve Barclay MP, Chancellor of the Duchy of Lancaster. Responsible for delivery of the government’s domestic and economic priorities, coordination between central government departments, and efficiency and reform in the public sector.|
|Chief Secretary to the Treasury||Simon Clarke MP, cabinet attendee and the most senior minister within HM Treasury after the Chancellor. Responsible for public spending including negotiating the Spending Review with departments.|
|Financial Secretary to the Treasury||Lucy Frazer QC MP, minister of state within HM Treasury. Responsible for tax policy and customs.|
|Deficit / (surplus)||The fiscal deficit, officially known as public sector net borrowing, is the primary measure of financial performance used by the government. It is the shortfall (excess) between taxes and other government income and total managed expenditure calculated in accordance with statistics-based National Accounts rules. Despite its official name it excludes borrowing for other purposes such as to fund lending to students and businesses, in addition cash timing differences. The government uses a measure for the deficit that excludes the state-owned NatWest Group (formerly The Royal Bank of Scotland).|
|Current deficit / (current surplus)||A subtotal in getting to the deficit that excludes net investment, in other words the shortfall (excess) between taxes and other government income and current expenditure calculated in accordance with statistics-based National Accounts rules. Not to be confused with the ‘current account deficit’, which relates to imports, exports, and other international flows in the wider economy.|
|Debt||Public sector net debt is the primary measure of financial position used by the government within the National Accounts. It comprises debt owed to external parties less cash and other liquid financial assets and excludes some debt-like liabilities such as private-finance initiative embedded lease obligations. Most public debt is raised by the Debt Management Office (DMO) selling government bonds (principally gilts) to professional investors. National Savings & Investments also raises money by taking retail deposits from the public.|
|Fiscal rules||Financial targets set as part of the government’s fiscal policy framework within the statutory Charter for Budget Responsibility. Their aim is to bring down the deficit and debt. The Chancellor is expected to announce new fiscal rules including one targeting a current surplus within the next few years and another to reduce the ratio of debt to GDP over time.|
|DEL and AME||Department Expenditure Limits and Annually Managed Expenditure, being the two categories government spending is divided into. DEL comprises programme and administration costs incurred by central government departments, while AME consists of other types of expenditure such as welfare, interest, devolved administrations, local government, and other activities. DEL and AME are both reported net of ancillary income such as fees and charges and are measured in accordance with UK government-specific resource accounting rules that differ from both operating and capital expenditure reported in financial statements under International Financial Reporting Standards (IFRS) and the fiscal numbers for the debt and deficit reported in the National Accounts under UN international statistical standards.|
|RDEL and RAME||Resource DEL and Resource AME – the government equivalent of expenditure, net of ancillary income. Usually reported exclusive of depreciation.|
|CDEL and CAME||Capital DEL and Capital AME – the government equivalent of capital expenditure, net of proceeds from the sale of fixed assets.|
|Public sector current expenditure||The measure of expenditure reported by the Office for National Statistics (ONS). This is not the same as adding RDEL and RAME together because of significant differences between the government’s resource accounting framework used for budgeting and financial management and the statistics-based National Accounts compiled by the ONS.|
|Public sector net investment||The measure of capital investment reported by the ONS, after deducting depreciation to provide a proxy for ‘new’ investment. Not the same as CDEL + CAME – depreciation because of the significant differences in reporting frameworks.|
|Total managed expenditure (TME)||Total public spending = public sector current expenditure + public sector net investment.|
|Economic and Fiscal Outlook (EFO)||A set of economic and financial forecasts prepared twice-yearly by the independent Office for Budget Responsibility (OBR) that combines extrapolations of government spending plans from the current or most recent Spending Review with projections for tax and other receipts, welfare spending, interest, and other costs. The fiscal forecast usually comprises a revised estimate for the current financial year and projections for the next five financial years based on the economic assumptions determined by the OBR.|
|Economic growth||An increase in GDP above inflation (see GDP deflator).|
|GDP||Gross Domestic Product, an estimate of the total value of transactions within the UK economy.|
|GDP deflator||A measure of inflation across all sectors of the economy including government that is used in the economic and fiscal forecasts. It differs from other measures of inflation such as increases in the consumer-price index (CPI), the consumer-price index including housing (CPIH) and the retail prices index (RPI).|
|Public sector||The UK government and the Scottish, Welsh and Northern Irish devolved administrations, and the public bodies they control (central government), regional and local authorities, police & crime commissioners, fire services, Transport for London, and the public bodies they control (local government), the Bank of England and government-owned businesses (public corporations), and public sector pensions.|
|Supply Estimates||The formal process of obtaining Parliamentary approval for departmental spending each year. These convert the budgets agreed with the Treasury for both DEL and AME each year and convert them into a formal legal authorisation for each department to incur expenditure. Supplementary Supply Estimates during the financial year are sometimes needed if spending authorisations need to be adjusted.|
|Finance Bill||The proposed legislation that puts tax changes into law. Becomes a Finance Act once passed by Parliament.|
|Whole of Government Accounts (WGA)||Consolidated financial statements for the public sector prepared in accordance with IFRS. The WGA recognise a wider range of assets and liabilities than are reported in the fiscal numbers. The income and expenditure statement and balance sheet amounts reported in the WGA include long-term costs and balances for public sector pensions, nuclear decommissioning, clinical negligence and other assets and liabilities that are excluded from the fiscal deficit and from public sector net debt reported under the National Accounts rules.|
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