The way the government sets out its budget is through allocation of monies to different governmental departments. These departments then allocate monies for services such as, health, defence, welfare benefits etc. "The Spending Review is the way that the Government sets spending plans for each department over a period of several years " (Anon, 2010)[1]. On 20th October 2010, the Government announced substantial UK spending cuts with local authorities, police, defence and welfare budgets all reduced. As a result the Government intends to "cut £81 bn from public spending over four years " (BBC, 2010)[2]. Up to 500,000 public sector jobs could go by 2014/15, as a result of the cuts programme, according to the Office for Budget Responsibility (HM Treasury, 2010)[3]. .
Over the last few years the gap between what the Government took in as income and what it had to borrow to spend on services grew significantly. The yearly gap between the Government's income and what it spends is known as the ˜deficit'. In recent years this deficit has grown in size. The key outcome from the Spending Review 2010, was to set in train a process of cutting the deficit and to make it more manageable and affordable in the future years. The government intends to do this through, reduction in government spending, such as, savings from welfare reforms and increases in taxation, e.g. the increase in VAT to 20 percent in January 2011 (Williamson, 2010)[4]. In the UK the Government obtains its income mainly from taxation, National Insurance contributions and excise duties. Due to the recession which began in 2008, the Government's income dropped, but Government spending continued to increase. The deficit last year (2009/10) was £155 bn (Anon, 2010)[1]. This is the amount of additional money the Government had to borrow to be able to pay for its spending on governmental activities last year. .
Macroeconomics .