Rachel Reeves’ spending review in focus

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Many say about the current situation of the UK policy, which has taken it on this importance today.

What should be a relatively direct event, as Rachel Reeves, Treasury Advisor, was described as government spending plans for the next three financial years, even by some commentators as the moment specified for this parliament.

This is because, after less than one year of the majority of the ground collapse by voters in the United Kingdom, the government of Prime Minister Kiir Starmer is not very popular and wanders around it to wander to satisfy the thief and resentment audience.

It is important, at first, to clarify what will not happen today. This is not a financial event – Reeves is committed to one of this year only and the other will be the autumn budget.

Therefore, there will be no expectations from the budget responsibility office and there are no details on how the government plans to raise funds during the coming fiscal year. There will be no changes in the tax policy that has been announced; Not, unless something great happens, there will be any changes to the total amounts that the government expects to spend.

This is because these numbers are already in the public domain: Determination last October.Spending“During the next three financial years, with high daily spending (such as public sector salaries) by 1.2 % on average in real conditions over the next three years and capital spending (such as transportation infrastructure) scheduled to rise by 1.3 % on average over the next four years.

The spending envelope, which is the narrowest for many years, has been dictated by the financial rules of Reeves-This daily spending must be covered with tax revenues, not borrowing, and that debts, as a percentage of gross domestic product, must decrease by the end of this Pyrelas. Most economists believe that it is at a very danger of breaking these rules, although it has placed itself on an area of ​​9.9 billion pounds only (13.4 billion dollars) in its last budget-since the economic view has deteriorated and increased the costs of government boats in the United Kingdom.

All of this adds to the importance of spending spending today, which is, as the independent institute of financial studies (IFS) indicates, “the first multi -year spending review since 2021 and the first to happen outside the epidemic since 2015.”

Although it is not a financial event, bond markets will monitor hints about what can be expected regarding taxes and borrowing in the fall.

We have received one hint of such a hint when the treasury announced on Monday by turning full of government decisions. Shortly after its election in July last year, Reeves announced that the winter fuel allowance-which is pensioners for either 200 pounds or 300 pounds annually in 1997 by one of its workers’ ancestors Gordon Brown-from now on, is that it effectively stripped of 10 million pensioners. However, after a violent political reaction, the Treasury said on Monday that the benefit will be restored to everyone except for the richest millionaire in a move that would cost the government 1.5 billion pounds annually. No indication of where this money will come from.

There was also a lot of other leaks related to spending review. The Times stated on Saturday that the national health service (NHS) will receive an increase of 2.8 % in terms of the real budget for its daily budget over three years, equivalent to approximately 30 billion pounds in cash value by 2028. The question here (with the leaders of the Doctors ’Association doctors already for industrial work) is in reality that will go towards improving the patient’s services and paying it in doctors.

Another big winner seems to be the defense that, as IFS, appears to be implicitly allocated to all the increase in capital spending during the spending period.

The government is already Plans To raise defense spending from 2.3 % of GDP to 2.5 % of GDP by 2027 and to 3 % by the early 1930s – which is under pressure to move forward. The Trump administration made it clear that it believes that NATO members should spend 5 % of the GDP of defense In a speech on Monday, Mark Retty, the Secretary -General of NATO, said the same. Reeves will need to find an additional 24 billion pounds to take on defensive spending to only 3 % of GDP.

These major spending obligations-especially for NHS, which already consumes 2 pounds per 5 pounds of daily government spending-mean the real-term discounts in other departments. Many of these matters have already been extended for years of austerity after the global financial crisis, from which the UK appeared in the deficit rate to GDP by 10 %.

Britain’s justice system, from courts to prisons, is subjected to great pressure. Likewise, the local government, which, at the time of high costs due to the aging of the population, must capture the tab for a lot of social care. The country’s schools also face pressure; While some new money was allocated, It was said to schools To finance about a quarter of the 4 % salaries granted to teachers this year of current budgets. Stories, stories abound from teaching aides-many of whom work part-time-or their hours decrease.

Elsewhere, newspaper reports covered prominent ranks within the cabinet. Ed Miliband, Minister of Energy, is facing discounts in his ministry to protect his dear program, while Angela Rainer, Prime Minister and Minister of Housing, has clashed with treasury officials while she was able to protect her plan to build more affordable houses. Nevertheless, it is said that the biggest arguments were between the Treasury and YVette Coper, the experienced Minister of Interior and veteran warriors in the last party government, due to the police budget.

Productivity problems

In the midst of all this, there is an urgent need for large areas of the British state to do more with less.

As Sanjay Raja, UK’s chief economist at Deutsche Bank, said in a note to customers last week: “The markets will monitor any repercussions from the spending review, while we will also consider the sustainability of spending policy. Productivity growth, global trade tensions, and labor market more flexible.

This talks about the heart of the UK problem: the terrible productivity record for its public sector, especially NHS. For example, it appeared on the weekend that NHS spent at least 102 million pounds to send messages by publishing last year – causing countless dates lost due to slow delivery operations – despite her promise to go digital in an era almost every patient who has almost e -mail arrival.

The weakness of NHS productivity is not a new phenomenon. A long time ago, in March 2010, during the days from the Braun government, the National Statistics Office stated that from 1995 to 2008, NHS productivity decreased by 0.3 % a year, with a decline accelerating after 2001 when Brown launched, as a consultant, a significant increase in service spending.

In the absence of productivity improvements or economic growth, increased spending in future must be fulfilled by increasing borrowing or taxes. Looking at Reeves’s dedication to its financial rules, it is unlikely to choose the first. Amazingly, during the interviews on Monday to discuss fuel climbing in the winter, it clearly failed to exclude tax increases in the fall.

Many economists now believe that this is almost inevitable, among them Raja, who wrote: “Perhaps the most difficult decisions in the future for the advisor. Based on our estimates, we see a financial hole approaching 10 to 15 billion pounds before it is based on the autumn budget.

Another reason for the anticipation of tax increases in the fall is the inability to make the government modest, as shown by the winter fuel turn.

“While it is not of great importance the economy, he talks about the problem that if the consultants/PMS cannot find in a political point of view to find the cost of the cost (1 % of the reforms), the association’s markets will be necessary in the cost. The sector’s debts are on a sustainable path,” said French -economist Simon, Simon, Panmure Liberum.

Being a political event, Reeves must try to produce at least one rabbit from its hat, although most spending decisions have already been announced or leaked. Labor Party representatives love her to cancel the maximum that restricts the child’s benefit to the first two children in the family – a step that will cost 3.5 billion pounds.

The biggest surprise ever is the increase in total spending envelope, and it may be justified by the fact that economic expectations have been changed through unexpected events, especially US President Donald Trump’s tariff.

But a declaration of this type – who is not accompanied by additional spending – is likely to provoke a violent reaction not only in Gilts, but also from government critics.

Ian King