Budget 2018: Where next for public spending?

In his Budget speech yesterday, Philip Hammond announced to Parliament that “austerity is coming to an end”. Although this language was less forceful than the Prime Minister’s “austerity is over” at the Conservative Party Conference earlier this month, it still suggests he wants to start spending more. We took a closer look at some of the numbers in the Budget related to public spending.

 

Spending will be going up faster (but not right across Government)

UK public spending

This Budget has increased the forecast spending totals in real terms – the Government is now set to spend just over £61 billion more by 2022-23 than it had previously planned, an increase of 1.5%. This increase accelerates over time – in fact, the forecast for 2018-19 is slightly lower than it was in the Spring Statement, but in 2022-23 it’s £22 billion higher. Some of the change will not be due to policy decisions; changes in accounting or in economic forecasts can also have an impact.

Difference between 2018 Budget and Spring Statement

 

The state continues to shrink, but slower than before…

The state 2018 Budget

Spending as a proportion of GDP is often referred to as “the size of the state”, and since the end of the Second World War it has typically remained in the 35%-45% range (it’s currently about 38%). This Budget’s forecasts show that even though spending is forecast to rise, the economy is forecast to grow at a faster rate, so the state will continue to shrink. However, it will shrink slower than previously forecast in the Spring Statement.

 

Planned spending takes the crown again

2018 Budget planned spending

Public spending is split into two main categories – long-term planned spending, and demand-driven or otherwise unpredictable spending that is set on an annual basis. Since about 2011, demand-driven spending has made up the majority of all public spending – this trend is set to reverse in 2019-20, as planned spending once again becomes the largest element.

The Chancellor clarified on Tuesday morning that the Budget increases day-to-day planned spending, but that all of the real-terms increase in this measure will be going into health spending. All other departments combined will see flat day-to-day planned spending in real terms.

 

Long-term plans and short-term uncertainty

As expected, the Chancellor also provided more detail about next year’s Spending Review. These happen every few years and set out the Government’s spending plans for the near future – exactly how near is up to the Chancellor of the day, and there had been some suggestions beforehand that Mr Hammond could do a very short-term Spending Review (of as little as one year) to account for the uncertainty over Brexit.

As it happened, the Chancellor opted to go for the longest Spending Review period since these reviews were introduced in 1998: five years, ending in 2023-24. However, his speech did hint at the uncertainty around the economy; there were expectations of a “Deal Dividend” to push the spending totals higher in the event that the Government secures a deal with the EU. There was also mention of “retaining firepower to intervene if the economy needs more support in the coming months,” along with a promise to “take whatever action is appropriate” in the event that “the economic or fiscal outlook changes materially in-year”. It therefore seems likely that we will see some revisions to these figures in the coming months, one way or the other.

Further reading

Budget 2018: Where has the Chancellor’s money come from? House of Commons Library.

Autumn Budget 2018: A summary, House of Commons Library.

 

Philip Brien is a Statistics Researcher at the House of Commons Library, specialising in public spending.