The three factors you should pay attention to when Rishi Sunak unveils his spending review

The only way of squaring the books will be through growth. But until that returns, there will be a lot of economic debris to clean up, writes Hamish McRae

The chancellor will reveal details of the review this week (Reuters)

Next year the economy – and our lives – will move back to some sort of normality. So too will the government’s finances. On Wednesday, we will learn more about what the new normal will look like when Rishi Sunak unwraps the spending review for the new financial year starting next April. We will be moving from the big bang of the Covid emergency to the steady state of mopping up the debris.

The review is only for one year, something that the chancellor has been criticised for. But in reality, it is very hard to plan spending for several years ahead when you have little idea of the revenues the economy will churn out. Take the October figures, which came out last week. They showed that the deficit for the month was £22bn, nearly double that for October last year. There are all sorts of revisions going on, but it looks as though the deficit this financial year may not be quite as high as feared in the summer.

But it is still almost unbelievably massive. It is easiest to think in round numbers, and there is a good summary.  in the House of Commons Library. The economy in the last financial year was roughly £2,200bn. The deficit was about £56bn, so 2.5 per cent of GDP. Revenue since the 1970s has been stuck in the range of 35-40 per cent of GDP – it got just above 40 per cent in the early years of the North Sea oil boom. Spending has jumped around from 35 per cent of GDP to 47 per cent in 2010 when the deficit touched 10 per cent of GDP.