It was billed as a massive moment in British economic policymaking – a juncture where the Labour government would turn its economic philosophy into a fiscal reality, running its finger down every line of public spending and overhauling the machinery of government for years to come.
So, did the spending review live up to its hype?
The answer, of course, is no. But then again, if you’re expecting dramatic changes and seismic shifts from spending reviews, you should probably go and lie down in a dark room for a period.
After all, the big picture for this review has been set in stone for some time. We’ve known for months about the scale of overall government spending in coming years (in short: slight increases in day-to-day spending; bigger increases in investment).
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The only remaining question was how that money was going to be apportioned. And the answer to that question threw up few surprises. As was the case in every previous review in recent memory, the biggest winner was health, which continued to grow – not just in absolute terms but also as a share of public spending.
The big winner when it came to the investment spending doled out by the Chancellor was, as expected, defence – primarily to fund that 2.5% (or thereabouts) of gross domestic product (GDP) pledge made by the prime minister earlier this year.
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There was more money for transport, although questions remain over whether more money will be needed for HS2 when it comes back for an accounting “reset” (translation: this is going to cost loads more than we told you) next year.
But in short: no enormous surprises. Then again, this was never going to be one of those spending reviews that dramatically changed the nature of the state, like the ones carried out by Gordon Brown as Chancellor at the turn of the millennium. Those Brownite reviews tended to increase day to day spending by around 5% a year. This one only increased day to day spending by less than 2%.
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But that tells you a lot about the constraints under which the Chancellor is working. In short, today, the national debt is considerably larger than in 2000. So too is the tax burden. So are debt interest costs, not to mention the health costs of an ageing population.
Set that all alongside the Chancellor’s fiscal rules (which commit her not to borrow too much more save for investment) and you see the problem. She doesn’t have much room left to spend.
A sudden deterioration in the economy (due to, say, a trade war) and all of a sudden she’s missing her rules. Which is why this spending review does nothing to answer the question that continues to hang over her: will she have to raise taxes again to make her sums add up? Indeed, now that she’s committed herself to spending certain amounts in the coming years, she’s running out of levers to pull if something goes wrong.
