Chancellor tells Whitehall to get ready for budget cuts

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3 min read
Britain's chancellor of the exchequer Rishi Sunak participates in the first face-to-face cabinet meeting since mid-March, in London. Photo: Simon Dawson/AFP via Getty Images
Britain's chancellor of the exchequer Rishi Sunak participates in the first face-to-face cabinet meeting since mid-March, in London. Photo: Simon Dawson/AFP via Getty Images

The chancellor has put government departments on notice for budget cuts and told public sector workers not to expect another bumper pay rise any time soon, part of cost-saving measures to tackle the UK’s ballooning national debt and deficit.

The Treasury on Tuesday announced the long-delayed launch of a government spending review, which will determine the day-to-day budgets of government departments for the next three years.

The review will have a specific focus on how Whitehall can help investment in jobs, skills training and “levelling up” UK regions. It will also look at how to make the UK a scientific “superpower” and improve its standing in the world post-Brexit.

Read more: UK faces worst downturn in 300 years

However, the Treasury warned that there would be “tough choices” when it came to non-priority spending. Departments have been told to “identify opportunities to reprioritise and deliver savings” in preparation for the review.

The Treasury added that it would “exercise restraint in future public sector pay awards,” saying they could not rise faster than private sector pay. It came hours after the government confirmed inflation-beating pay increases for 900,000 public sector workers.

Spending reviews do not take into account policy costs and so the Treasury’s warning on department budgets does not amount to a return to the austerity seen under former prime minister David Cameron.

However, the cost-saving drive reflects the need for chancellor Rishi Sunak to get on top of the ballooning costs of the government’s COVID-19 response.

The government is expected to spend almost £200bn ($254bn) fighting the COVID-19 pandemic this year. Meanwhile, the economy has already shrunk by a fifth in just two months and faces its worst recession in 300 years. That will cause a slump in tax receipts.

The combination means the government is expected to borrow over £300bn this year alone.

Read more: UK government borrowing hits quarterly record

Sunak warned earlier this month that the UK would face “difficult” future choices to get public finances back to a more sustainable position. A review of capital gains tax ordered last week sparked speculation that the chancellor could raise this tax as part of a raid on the wealthy to pay down debt.

“The first phase of our economic response to coronavirus was about safeguarding employment as far as possible,” Sunak said in a statement on Tuesday. “Our goal in the second phase is to protect, create and support jobs and we set out our plan to achieve this two weeks ago.

“The Comprehensive Spending Review is our opportunity to deliver on the third phase of our recovery plan – where we will honour the commitments made in the March budget to rebuild, level up and invest in people and places spreading opportunities more evenly across the nation.”

The spending review was initially due last year but was delayed due to Brexit. The onset of the COVID-19 pandemic further delayed the process. The final report is due in Spring 2021.