The Rundown Podcast: How Do Spending Reviews Work?

5 min read06 June

With Rachel Reeves finalising her comprehensive spending review next Wednesday, this week The Rundown is looking at what exactly it is and how the process works, going inside the battles between the Treasury and Whitehall departments on spending plans for the coming years, looking back at previous reviews and seeing what can be learnt ahead of the Chancellor’s big speech, and what it will say about this government’s priorities over the course of the Parliament.

To discuss all that, and reflect on how useful spending reviews are for creating economic policy, host Alain Tolhurst is joined by John Glen, Conservative MP and former Treasury minister, and Sonia Khan, who was a special adviser to Philip Hammond during his time as chancellor.

Also appearing are Bee Boileau, research economist at the Institute for Fiscal Studies, and Tom Pope, deputy chief economist at the Institute for Government. Later in the episode, Brandon Lewis, who was a minister in multiple departments under four different Tory prime ministers, reflects on his experience of the spending review process.

Khan, who has experience of the long and sometimes fraught process of settling departmental budgets, said: “You want to get the hard stuff out of the way early, but it never ever happens, you go right to the very end.

"Normally, it's when the two ministers who dislike each other the most, that also plays a factor.”

She said part of the problem can be when the government doesn't “really have a very clear goal for delivery at the start”, adding that strict adherence to tight fiscal rules has seen Reeves “boxed herself in further”.

Khan added that, given the larger fiscal commitments currently needed due to external factors like defence spending to tackle the threat from Russia, now was a good opportunity to loosen those rules and give herself more room to fund things the government wants to spend on.

“I can't understand why the external environment isn't being used for a big reset,” she said, a view echoed by Glen, who served under several chancellors during his time in the Treasury.

“The challenge that the Chancellor faces with tariffs, the new approach of Trump, what's happening in defence and the uncertainty which drives expectations is just the reality of the context you find yourself operating in,” he said.

“What she should do is make a virtue of resetting on the basis of those new conditions.”

He highlighted that higher gilt prices mean further borrowing continues to be expensive, but added: “The point is that to be effective as a leader, you've got to almost step into those problems and reset around the new world that we operate in.

“That is probably a better place to go than actually try and hold on to some of these fixed constraints in a world that was very different last summer.”

There has been criticism of the spending review process, which pits ministers against one another in a scramble to secure funding for their own departments, but Pope said it might still be the best way for governments to set spending policy.

“What does an alternative, feasible method of allocating government spending look like?” he asked.

“In a way, we need to have these difficult crunch points where government really think about these trade-offs in the round.

“It would be a disaster if the government, and actually, as previous governments have done, settles a five-year plan for health, as we did under Theresa May, not considering the rest of spending as well."

Boileau agreed on the utility of the process, both for crystallising government’s priorities, but also giving certainty both inside Whitehall and out about where spending will take place over the coming years.

“This is one of the reasons that spending reviews are such useful moments, these are points at which a government has to take these overall total figures for day to day and capital spending and actually allocate them to departments, and they have to spell out any implied cuts that are within them,” she said.

“It really forces you to make those priorities clear.”

Dealing with the process from the other side, Lewis said that for any minister trying to fight their corner with the Treasury, they shouldn’t be afraid of bringing in the Prime Minister if the spending is for one of their key objectives.

He said the key thing is "you've got to convince your department that what you want to do is a big enough priority for the department to put political capital into making that case to the Treasury “, and it has to make sense economically.

“Because one thing the Treasury are very good at with the Spending Review, regardless of chancellor or chief secretary, is the Treasury's opportunity to control government,” Lewis explains.

“And so if you're going to go to bat for something there you've either got to be aware that it's something the Treasury wants, or is it something you feel strongly enough about you're prepared to use up capital to try and push this through, and that can mean having to bring in the PM.”

The Rundown is presented by Alain Tolhurst, produced by Nick Hilton and edited by Ewan Cameron for Podot