U.K. Chancellor Delays Full Spending Review to 2020

(Bloomberg) -- The U.K. government delayed its full spending review to 2020 and will instead hold a one-year exercise so departments know their budgets for the next financial year.

The decision, announced by Chancellor of the Exchequer Sajid Javid Thursday, ends months of speculation but will disappoint departments craving certainty about their finances. Only the National Health Service has a medium-term plan.

It underlines the uncertainty over the outlook for the economy, given the growing risk that Britain crashes out of the European Union without a deal on Oct. 31. A no-deal Brexit would lead officials to sharply revise their forecasts for growth and borrowing.

The Treasury said in a statement it will hold a fast-tracked spending round, setting budgets for day-to-day spending for the 2020-21 fiscal year, which begins in April. Budgets for capital spending are already in place for the year.

The review, due to be completed next month, will focus on commitments made by Boris Johnson since he became prime minister, including funding for schools, policing and the National Health Service.

Brexit Focus

Javid said the short review would give departments space to focus on the primary aim of delivering Brexit by Oct. 31.

Spending reviews decide the cash each department gets for capital investment, administration and public services -- areas that account for almost half of all state spending.

While the NHS was awarded a inflation-busting 27 billion pounds ($33 billion) in a multi-year settlement announced last year, other ministries don’t know their current budgets after March 2020.

“The Tories have dumped any pretence any longer to have a so called long term economic plan. None of our public services will be able to prepare for anything beyond the next year,” said Shadow Chancellor John McDonnell of the opposition Labour Party. “This is no way to run a budget or a country.”

The last review was announced in 2015 and another three-year review was due to take place this year. But uncertainty around the shape of Brexit and how it would affect the economy led the previous chancellor, Philip Hammond, to delay the process.

Hammond had held out the prospect of an end to years of austerity that cost the Conservatives their parliamentary majority at the 2017 general election. His plans included 15 billion pounds ($18 billion) of “headroom” in 2020-21 to increase borrowing without breaking his fiscal rules.

The Treasury said the government will meet the existing fiscal rules, ensuring the structural budget deficit is kept below 2% of GDP and the burden of debt declines.

However, there are doubts about Johnson’s longer-term commitment to fiscal prudence. His promises already include 20 billion pounds of income-tax cuts and he announced additional funding for the NHS this week, fueling speculation he is preparing to call a general election if opponents of a no-deal Brexit mount a no-confidence vote in Parliament.

To contact the reporter on this story: Jessica Shankleman in London at jshankleman@bloomberg.net

To contact the editors responsible for this story: Tim Ross at tross54@bloomberg.net, Andrew Atkinson, Lucy Meakin

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