Business Reporter, BBC News
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The government must make “unavoidable” tough choices as it finalizes its spending plans, affecting sectors like the NHS, defense, schools, and the justice system, according to a think tank.
The Institute for Fiscal Studies (IFS) stated that health spending will influence cuts in unprotected sectors, which exclude the NHS, defense, and education.
Despite significant funding increases in 2024 for various sectors, this trend is not expected to continue in subsequent years due to government commitments.
The government indicated that its Spending Review on June 11 would “scrutinize every penny” spent.
The review will set out departmental budgets for the next three years and investment budgets for four.
According to Whitehall sources, the outlook appears “bleak,” with ministers competing for minimal funding for their departments.
Concerns have arisen regarding funding for initiatives like increasing police personnel to reduce violence against women and girls, as well as plans to cap bus fares.
Chancellor Rachel Reeves’s commitment to avoiding further borrowing and tax increases has fueled speculation about potential spending cuts.
The IFS noted that the government has “front-loaded” spending in the early years of the parliamentary term, which will lead to reduced spending later. “The implications of this choice are significant,” the IFS cautioned.
Daily spending on public services heavily relies on the funding provided to the NHS, which makes up 39% of departmental spending, as well as defense budgets.
The IFS projected NHS spending at £202bn in 2025-2026, which may divert resources from other sectors as the government focuses on reducing patient waiting times and improving dental care access.
“To maintain historical funding levels for health would necessitate real-terms cuts to other unprotected departments,” the think tank remarked.
This presents challenges, particularly regarding the government’s plans to enhance the criminal justice system and address prison overcrowding.
‘Increased defense spending necessitates cuts elsewhere’
The IFS indicated that the level of health spending represents a crucial trade-off in the Spending Review, particularly if defense budgets increase faster than anticipated.
Research economist Bee Boileau stated that the Treasury faces “inevitable difficult decisions.”
“Following increased funding last autumn, we are now seeing a reduction in the rate of additional funding,” she explained.
The government has pledged to boost army funding and has indicated cuts to the foreign aid budget to elevate military spending to 2.5% of national income by 2027.
“Increased defense allocations imply larger cuts elsewhere,” emphasized the IFS.
In October, Chancellor Reeves revised a debt rule, freeing up substantial funds for long-term projects like infrastructure; however, the IFS warned that “not every initiative can be prioritized for additional funding.”
Questions linger about whether the government will face these trade-offs directly rather than ignoring them.
To enhance public services amid budget constraints, the IFS suggested that the government could boost productivity to deliver similar, if not improved, services at lower costs.
However, this remains a challenge; the ONS revealed in 2024 that productivity levels in public services are still below pre-pandemic figures.
A government spokesperson stated it is focused on “delivering essential services for working people, such as reducing hospital wait times, managing borders, and alleviating living costs.”
The IFS cautioned that a decision to cut public sector wages has previously led to strikes, and maintaining static pay could “pose significant challenges.”
In conclusion, while cuts to public services might not be impossible, they will be difficult and require “strategic prioritization.”