(Bloomberg) -- The UK Treasury has told several government departments to prepare for their budgets to be frozen in cash terms ahead of a major spending review planned in June.
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The ruling Labour Party has previously pledged to avoid a return to austerity in Britain, yet the public finances are under pressure from high borrowing costs and stagnant economic growth. Departments are in the process of bidding for funds from 2026 to 2029, with unprotected areas like justice, culture, trade and local government at risk of being squeezed.
Although Chancellor of the Exchequer Rachel Reeves increased the overall spending envelope in 2028-29 by £50 billion ($62 billion) at her budget in October, the bulk of the money has been committed to health, education and defense — whose budgets are protected. Other departments are facing £9 billion real-terms cuts in day-to day spending, the Institute for Fiscal Studies estimated last October.
Now, one senior official at an unprotected department said the Treasury has asked them to model “flat cash” spending plans, which implies big cuts after adjusting for inflation. Another said they were being asked to model cuts of 3% to 5% in real terms. Both spoke anonymously because the information is confidential.
“The Chancellor has asked all departments to deliver savings and efficiencies of 5% of their current budget as part of the first zero-based spending review in 17 years,” a Treasury spokesman said. “Every pound of government spending is being interrogated, to root out waste and get the best value for taxpayers.” Under the zero-based approach, every single pound the government spends will be subjected to a line-by-line review. In some departments, any savings found may be reallocated to other priorities.
To be sure, the plans may not be realized. Spending cuts would be politically unpalatable for many Labour Members of Parliament, who campaigned in last year’s election to end austerity and repair Britain’s crippled public services. Health care backlogs remain near record levels in Britain, several councils are close to bankruptcy, prisons are effectively full and roads are riddled with potholes.
Reeves told Labour’s conference last year that there would be “no return to austerity — Conservative austerity was a destructive choice for our public services, and for investment and growth too.”