Rachel Reeves will hold a multi-year spending review next spring and commit to running a spending review every two years thereafter to give departments more certainty over their medium-term finances, the chancellor has said.
Reeves announced a series of reforms to the government's fiscal planning in a speech this afternoon that revealed a £22bn “black hole” in the public finances caused by inflation, unfunded spending commitments and unforeseen events such as the Ukraine war and rising asylum costs.
One “significant underlying cause” of the spending pressures identified in the review was “the failure to hold regular spending reviews to re-plan departmental spending in the face of shocks”, the Treasury said in a review of public finances that informed Reeves's speech.
The last spending review took place in 2021, meaning that “budgets are largely based on macroeconomic assumptions which are three years out of date, and departmental planning horizons have shrunk to less than one year”, it said.
Speaking in the House of Commons this afternoon, Reeves pledged to “ensure that never again do public service budgets get set at only a few months’ notice”.
“Instead, spending reviews will take place every two years, with a minimum planning horizon of three years, to avoid uncertainty for departments and to bring stability to the public finances,” she said.
Reeves's first spending review “will set departmental budgets for at least three years, providing the long-term certainty that has been lacking for too long”, the chancellor said.
It will include a "strategic plan for a more efficient and effective civil service", according to the Treasury, "including bold options to improve skills, harness digital technology and drive better outcomes for public services".
Under the review, the civil service "will also be required to make efficiencies through reducing use of consultants and making sure back-office functions are as streamlined as possible", it said.
Departmental spending limits for 2025-26 will be set alongside the Budget, which Reeves said would take place on 30 October, “to provide departments with necessary certainty”.
The Treasury will publish a revised Charter for Budget Responsibility alongside the Budget setting out the reforms to “increase certainty and transparency and prevent spending decisions being repeatedly delayed”, it said.
The charter – which sets out the government's approach to fiscal policy and management of the public finances – will set a minimum frequency and duration of spending reviews, the Treasury said.
It will also include measures to improve the transparency of the information the Treasury shares with the Office for Budget Responsibility, which provide independent economic forecasts and analysis of the public finances; and formalise the OBR’s power to forecast overspend against departmental expenditure limits in aggregate.
The changes will “ensure that there will always be medium-term departmental spending plans which the OBR will be able to assess aggregate pressures against”, the Treasury said.
The new Office of Value for Money, which the Labour committed to setting up in its general election manifesto, will meanwhile "ensure that it places value for money at the heart of government spending decisions", the document added.
Led by an independent chair, the OVfM will provide targeted interventions, working with Treasury and departments on specific spending decisions; and recommend system reforms to ensure any changes support the government’s missions and deliver value for money.
Reeves's first spending review will set spending plans for at least three years in a bid to “bring spending back under control”, the chancellor said.
"By launching the spending review, I am also today firing the starting gun on a new approach to public service reform to drive greater productivity in the public sector," she added.
She promised to "embed an approach to government that is mission-led; that is reform driven, with a greater focus on prevention and integration of services, at both a national and a local level; and that is enabled by new technology".