The government should delay the spending review as well as the budget

Having cobbled together a one-year settlement for public spending in 2020/21 ahead of last year’s election, this autumn was expected to provide the opportunity for Boris Johnson’s new government to set out its vision for the future of public services and investment.

It had planned to lay out new fiscal rules and multi-year spending plans that would show how the government would deliver on its commitments to level up, work towards net zero greenhouse gas emissions, fix social care and ramp up public investment – among other priorities.

But the coronavirus crisis, and the uncertainty it brings, has changed everything. The chancellor has already sensibly shelved plans to have a budget in November. He should also abandon plans to go ahead with the spending review.

Delaying the budget was a sensible choice

Traditionally budget day is the main opportunity each year for the chancellor to command headlines with new announcements on tax policy, laying out the government’s tax and spending plans in the context of updated economic and fiscal forecasts. The days after offer the opportunity for experts to assess what the government has given or taken away and to pore over how the chancellor has fit his policies to the new forecasts.

But this year is different. Since Rishi Sunak’s first budget in mid-March, he has made several new policy announcements to try to cushion the impact of Covid-19 – handing out billions of pounds for public services, wage subsidies, tax cuts for firms and business loans on generous terms. A budget would provide the opportunity to set out the government’s medium-term plans for tax, spending and borrowing. But now – as the government continues to battle the immediate problems of Covid – is not the time. It is, therefore, welcome that he has shelved plans for an autumn budget. Sunak should continue to respond to the needs of the UK economy as the coronavirus pandemic evolves.

The government is legally required to pass at least one budget resolution to form the basis of the new Finance Bill by April, which will give the government the power to keep collecting income tax and corporation tax. But there does not need to be a full set-piece budget in order to pass such a resolution.

New forecasts must be published

The one element of the budget that should go ahead is the publication of new forecasts from the official fiscal watchdog – the Office for Budget Responsibility (OBR). The public and parliamentarians need up-to-date information on the outlook for the economy and an assessment of the cost and impact of all the government’s measures in order to have a proper debate and scrutinise the government’s choices.

The chancellor has indicated he intends to ask the OBR to publish new forecasts in November, even without a budget. But the experience last year – when then chancellor Sajid Javid cancelled the autumn budget and no OBR forecast was published for a year – highlighted the legal ambiguity that surrounds the publication of the OBR’s biannual forecasts and the problems that ensue if none is published.

It would be preferable for the rules around when the OBR can publish its forecasts to be clarified in law, as was recommended by the OECD external review of the OBR^[1], published last week. But in the absence of that, Sunak should stand by his commitment to ask the OBR to publish a new set of forecasts in November even without a budget.

There is too much uncertainty about the next couple of years to make meaningful spending plans

Ordinarily, forward-planning and certainty are positive attributes for a government, but there is little good rationale for announcing ‘firm and fixed’ multi-year spending plans in a spending review this autumn. The reason for laying out multi-year spending plans is that it allows government departments and local authorities to plan their spending review more effectively, and enter into cost-saving multi-year contracts. But the Covid crisis and ongoing Brexit negotiations create so much uncertainty that any spending plans are likely to need to be revised before long. The demands on NHS services, for example, will be very different if a vaccine for Covid-19 is quickly developed and rolled out than if the disease remains a threat. It is also very unclear what permanent impact Covid might have on the economy and public finances – and thus on the budget available for public spending.

Both prime minister and chancellor have said the spending review will go ahead as planned. But there is therefore little to lose – and potentially much to gain in flexibility and staff time – from shelving any attempt to work up multi-year spending plans this autumn. The Institute made this argument two months ago and – with Covid case numbers rising and new restrictions on social interaction having been imposed – the case is only stronger now. The government should shelve plans for a full spending review this autumn and instead lay out budgets for just one year.