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The UK government should set out spending plans five years in advance to help restore stability to public expenditure, a think-tank has urged.
The Institute for Government warned on Thursday that the new Labour administration could fail to deliver its five missions for government unless it reforms the spending review process and stretches it to cover a longer timeframe.
The recommendation follows a fierce row between chancellor Rachel Reeves and her Tory predecessor Jeremy Hunt over a £22bn fiscal hole Reeves claims she inherited from the last Conservative administration.
The IfG said setting out spending plans that cover five years, along with reviews every three years, would provide longer-term stability while retaining an element of flexibility.
It said the ad hoc frequency and timing of previous spending reviews during the last quarter of a century had fuelled uncertainty.
A spending review is the process by which the UK government lays out how much each department is expected to spend in a specified period.
Reeves confirmed this week that she had kick started a multiyear spending review process, but would only publish finalised plans for the 2025-26 financial year alongside her first Budget on October 30.
Public expenditure plans for 2026-27 and 2027-28 will be finalised and published in the spring. Government officials said there was not enough time to produce a three-year review by this autumn.
Reeves told parliament that in future, however, spending reviews would take place every two years, with a minimum planning horizon of three years, “to avoid uncertainty for departments and to boost stability for our public finances”.
Hunt on Tuesday told the BBC that a longer time-period covering the five years of a parliament would be preferable. “The best way to have stability in public spending is to have a public spending review at the start of a parliament that lasts for a whole parliament,” he said.
The IfG also called for spending settlements beyond five years for large infrastructure projects and public sector capital programmes, including hospitals, schools and prisons, to end “stop-start” funding and under-investment in infrastructure maintenance and renewal.
Reeves vowed on Monday that Labour “will ensure that never again do public service budgets get set at only a few months’ notice”, as she heaped scorn on her predecessor, saying Hunt had allowed departments to lurch towards a spending “cliff-edge”. Hunt was chancellor from 2022 until this year’s July 4 election.
Whitehall budgets were last drawn up for a three-year period in 2021 by the Tory government then in charge. Reeves said this meant they did not reflect the impact of the recent surge in inflation, which hit 11 per cent at its peak in October 2022.
The chancellor said she planned to use the spending review to drive economic growth, including to “prioritise specific areas of capital investment that leverage in billions more in private investment”.
The IfG also warned that existing spending review process fails to align government expenditure with strategic priorities and achieve long-term value for money.
Poor use of evidence to guide decisions and an under-emphasis on government priorities in setting departmental budgets has undermined the management of public expenditure on multiple occasions since 1997, the IfG found.
The report said in the last spending review in 2021, under the Conservatives, there was a weak definition of “levelling up”, the label former prime minister Boris Johnson applied to his goal of reducing regional inequality.
The IfG said Labour should clearly defining its five missions — driving economic growth, green energy investment, rebooting the NHS, creating safer streets and delivering “opportunity for all” — and ensure that they underscore spending prioritisation in the upcoming review.