London Daily

Focus on the big picture.
Thursday, May 21, 2026

Rishi Sunak's Spending Review: Four things to look out for

Rishi Sunak's Spending Review: Four things to look out for

On Wednesday, Chancellor Rishi Sunak begins setting out plans for what he hopes will be an economy beyond Covid-19.

This Spending Review - detailing the money government departments will get for things like the NHS, education, roads, and police - only covers the financial year 2021-22. It will also set out money for the devolved administrations Scotland, Wales and Northern Ireland.

In normal times, reviews cover three or four years. But such is the economic uncertainty that this look-ahead has been limited to the next 12 months.

Even so, Mr Sunak will point to the direction of travel for spending (and possibly tax rises) for future years. Few reviews can have been so anticipated. Here's what to watch out for.

1. The difficult financial backdrop


The economic shock has left the UK poorer. By the end of this year the economy is expected to be at least 10% smaller than pre-pandemic.

Alongside the Spending Review, Mr Sunak will disclose latest forecasts for the economy and public finances from the independent Office for Budget Responsibility (OBR).

Earlier this year, the OBR forecast a 13% contraction. While it is not expected to be that bad, the shrinkage will still likely be in the double-digits, and with public borrowing topping £350bn - something not seen in peacetime.

A difficulty for the chancellor is that big tranches of public service spending have already been made. Despite that, some areas will reportedly get more: NHS England, schools and defence. According to the Institute for Fiscal Studies (IFS), some two-thirds of public service spending has been pre-determined.

The key question is whether the remaining third is enough to go round. The answer is almost certainly not. The IFS thinks "unprotected" services such as the courts, prisons or local government are vulnerable to cuts. The overseas aid budget is also in the line of fire.


Teachers are among workers who could face a pay freeze


2. Squeezing public sector pay


Saving, not spending, will dominate Wednesday's agenda. And one of the biggest savings could be a public sector pay freeze. It would be hugely controversial. Media leaks last week claimed Mr Sunak wants a freeze for everyone except frontline NHS staff.

That won't go down well with the police, teachers, civil servants or anyone who thinks they've done their bit to ensure the public sector keeps going in tough times. Even a return to a 1% cap is likely to be fiercely resisted.

Some commentators think the media reports were Treasury kite-flying. Even so, in the summer, Mr Sunak suggested that as private sector pay had taken a huge hit, in the "interest of fairness" the public sector's 5.4 million workers should share some pain.

Trouble is, relative to pay in the private sector, public sector pay has fallen to its lowest level in decades, according to the IFS.

Only during the pandemic has public sector pay performed more strongly than in the private sector. Union leaders have already warned of industrial action to ensure members' pay does not fall further behind.


There is speculation some government operations could be relocated from London


3. 'Levelling up'


Many promises have been thrown off-course because of the pandemic, and the government will be keen to get its north-south levelling up agenda back on track as soon as possible. Infrastructure spending is key to this.

The north has long complained that the Treasury methodology used to calculate the cost-benefit of spending money on big projects is inherently biased towards London and the rest of the south east. So, expect some changes to these calculations. And watch out for whether any spending promises are new money, or simply projects brought forward.

To underline his commitment to spend on big long-term projects, there is talk that Mr Sunak could publish details of a National Infrastructure Strategy and a Research and Development Strategy.

And in a symbolic move that levelling up is more than a question of infrastructure, the Financial Times has reported that the chancellor could also announce that parts of government could relocate from the capital - with the Treasury leading the way.


Tax hikes are inevitable, but rises too soon will choke off recovery, economists say


4. What happens next?


While Wednesday will be about spending and borrowing, at some point the chancellor will have to decide how it will be paid for. He will start to address this in next March's Budget, although most economic commentators feel the economy will still be too fragile for major tax rises.

It is possible that, with the success of a Covid vaccine, the economy could bounce back, limiting the need for big rises. However, Paul Johnson, director of the IFS, told the BBC that four or five years down the road he still expects the economy to be about 4%-5% smaller than before the pandemic.

Rein in spending and raise taxes too early, and recovery will be choked off. Leave it too late, and the public finances will spin out of control.

"It's a fine judgement," said Mr Johnson. Both the chancellor and Prime Minister Boris Johnson have, however, said they don't want a return to austerity.

There have been reports the Treasury could raise money from changes to Capital Gains Tax, pensions relief or self-employment taxes. But this is tinkering.

Mr Johnson believes £40bn of tax rises are necessary over the short-term, and that sort of money cannot be raised without touching the Big Three: income tax, VAT or national insurance. These bring in almost two-thirds of government revenue.

Newsletter

Related Articles

0:00
0:00
Close
'They're people from all walks of life across the UK'
EU Digital ID Claims Misstate What Brussels Can Legally Force on Member States
The Great Western Exit: Why Best Citizens Are Fleeing the Rich World [PODCAST]
The New Robber Barons of Intelligence: Are AI Bosses More Powerful Than Rockefeller?
The End of the Old Order [Podcast]
Britain’s Democracy Is Now a Costume
The AI Gold Rush Is Coming for America’s Last Open Spaces [Podcast]
The Pentagon’s AI Squeeze: Eight Tech Giants Get In, Anthropic Gets Shut Out [Podcast]
The War Map: Professor Jiang’s Dark Theory of Iran, Trump, China, Russia, Israel, and the Coming Global Shock [Podcast]
Labour Is No Longer a National Party [Podcast]
AI Isn’t Stealing Your Job. It’s Dismantling It Piece by Piece.
Lawyers vs Engineers: Why China Builds While America Litigates [Podcast]
Churchill’s Glass: The Drunk, the Doctor, and the Myth Britain Refuses to Sober Up From
Apple issues an unusual warning: this is how your iPhone can be hacked without you doing anything
Kennedy’s Quiet War on Antidepressants Sparks Alarm Across America’s Medical Establishment
The Met Gala Meets the Age of Billionaire Backlash
Russian Oligarch’s Superyacht Crosses Hormuz via Iran-Controlled Route
Gunfire Disrupts White House Correspondents’ Dinner as Trump Is Evacuated
A Leak, a King, and a Fracturing Alliance
Inside the Gates Foundation Turmoil: Layoffs, Scrutiny, and the Cost of Reputational Risk
UK Biobank Breach Exposes Health Data of 500,000, Listed for Sale on Chinese Platform
KPMG Cuts Around 10% of US Audit Partners After Failed Exit Push
French Police Probe Suspected Weather-Data Tampering After Unusual Polymarket Bets on Paris Temperatures
CATL Unveils Revolutionary EV Battery Tech: 1000 km Range and 7-Minute Charging Ahead of Beijing Auto Show
Crypto Scammers Capitalize on Maritime Chaos Near the Strait of Hormuz: A Rising Threat to Shipping Companies
Changi Airport: How Singapore Engineered the World’s Most Efficient Travel Experience
Power Dynamics: Apple’s Leadership Shakeup, Geopolitical Risks in the Strait of Hormuz, and Europe's Energy Strategy Amidst Global Challenges
Apple's Leadership Transition: Can New CEO John Ternus Navigate AI Challenges and Geopolitical Pressures?
Italy’s €100K Tax Gambit: Europe’s Soft Power Tax Haven
News Roundup
Microsoft lost 2.5 millions users (French government) to Linux
Privacy Problems in Microsoft Windows OS
News roundup
Péter András Magyar and the Strategic Reset of Hungary
Hungary After the Landslide — A Strategic Reset in Europe
Meghan Markle Plans Exclusive Women-Focused Retreat During Australia Visit
Starmer and Trump Hold Strategic Talks on Securing Strait of Hormuz Amid Rising Tensions
Unofficial Australia Visit by Prince Harry and Meghan Expected to Stir Tensions with Royal Circles
Pipeline Attack Cuts Significant Share of Saudi Arabia’s Oil Export Capacity
UK Stocks Rise on Ceasefire Momentum and Renewed Focus on Diplomacy
UK to Hold Further Strategic Talks on Strait of Hormuz Security
Starmer Voices Frustration as Global Tensions Drive Up UK Energy Costs
UK Students Voice Concern Over Proposal for Automatic Military Draft Registration
Rising Volatility Drives Uncertainty in UK Fuel and Petrol Prices
UK Moves to Deploy ‘Skyhammer’ Anti-Drone System to Strengthen Airspace Defense
New Analysis Explores UK Budget Mechanics in ‘Behind the Blue’ Feature
Man Arrested After Four Die in Channel Crossing Tragedy
UK Tightens Immigration Framework with New Sponsor Rules and Fee Increases
UK Foreign Secretary Highlights Impact of Intensified Strikes in Lebanon
UK Urges Inclusion of Lebanon in US-Iran Ceasefire Framework
×