Understanding the Expenditure Review
Even for those who regularly follow economic matters, the expenditure review can be a complex and daunting topic. This is one of the biggest moments in the UK Economic Calendar, and in some ways, it’s even greater than the annual budget. The reviews, which determine departmental expenditure for the coming years, only take place every few years, while budgets occur every 12 months.
Breaking Down the Review
The attempt to make sense of the expenditure review, especially in this year’s review, is a more difficult exercise than with the budget. This is largely due to the fact that the Office for Budget Responsibility (OBR), the quasi-independent body that examines the government’s figures, is not involved this time. There will be no OBR report to shed light or cast doubt on some of the government’s claims. Additionally, the data on state expenditure is already known.
Key Points to Consider
To approach the review, it’s best to take a step back and look at the bigger picture. There are five key things to know about the 2025 review:
- It’s Not About All Expenses: The review doesn’t cover the majority of government expenditure in the coming years. Government spending can be divided into two main categories: non-discretionary expenses (welfare, pensions, debt interest) and departmental expenditure (expenses that the government has more control over, such as the Ministry of Defense, NHS, and Ministry of Interior).
Departmental Expenditure
Departmental expenditure is what the review is about, determining what the departments will spend. This is a significant aspect of the review, as it will impact various government departments and their ability to allocate resources effectively.
Zero-Based Review
- It’s a "Zero-Based" Review: The government wants to spend a certain amount on its departments, but the review is not about deciding the entire departmental budgets. Instead, it’s about how the allocated money is divided between the departments. This is a "zero-based review," where each department must justify every pound it spends.
Multi-Year Review
- It’s the First Multi-Year Review in Ages: The review provides expenditure plans for a longer period than the government has been able to do in a long time. This certainty about future budget budgets is crucial for every state department, allowing them to calculate their plans and improve productivity in the coming years.
Austerity Measures
- It’s Not "Austerity Measures": The review is not about implementing austerity measures like those pursued by George Osborne after 2010. The amounts implied by this review are nothing like those implemented by the coalition government between 2010 and 2015.
Moderate Spending
- It’s Not a Big Splurge: While the sums have increased in the coming years, they are not increasing by much. Compared to most comprehensive spending reviews in the past, this is surprisingly small. The overall picture is one of moderation, with the numbers in the expenditure review telling a story of restraint rather than extravagance.
