The review will be published next July by the Chancellor and will confirm government spending plans for the four years to 2008. There is likely to be a general election in 2005, so this will be a major statement of intent before the Labour manifesto. While the opposition parties will look for gaps in the budget, Labour is likely to challenge the Conservatives on spending and the Liberal Democrats on tax. Whatever else goes on in politics, tax and public spending remain at the centre of the national debate.
There are still nine months until the publication of the review but there will be plenty of signals about its contents before then. Just last week, Gordon Brown told the Labour conference that public spending will continue to increase. He is likely to publish a forecast in the November pre-budget report and to confirm taxation plans in the March budget. These two documents will set the overall budget envelope within which departments can bid. The final division between departments is made between March and July, sometimes accompanied by leaks to the press to support bids.
In the last three spending reviews, education has done well. Cash increases of 8-9 per cent a year (5-6 per cent in real-terms) were secured in the 1998, 2000 and 2002 reviews. This lifts total education spending from pound;30 billion in 1998-9 to pound;55bn in 2005-6.
The extra money has financed expansion in schools, colleges and universities. It has funded teacher pay increases and it has helped to modernise buildings and buy equipment. Whether the education budget continues to rise is open to question. There is competition from other services. The NHS has a clear priority and a promise of a 10 per cent a year budget increase until 2008. Defence, fighting crime and transport will all make strong claims for more money. Last week, Gordon Brown restated the reduction in child poverty as his number one target.
Education remains high up the list of priorities but the Government will scrutinise all budgets particularly closely this time around. Its commitment to fiscal stability means that it may want to take action to return the budget to the surplus position by 2008.
Spending controls, tax increases and economic growth in the late 1990s contributed to a budget surplus for four years between 1998-9 and 2001-2.
The budget went into deficit in 2002-3 because spending increases now outstrip increases in tax income. These deficits may widen in the years from now, though this depends on economic growth.
Over the next nine months, the Chancellor will make a choice over the balance between tax, spending and debt. If he wants to sustain the increase in spending, he may need to raise taxes or borrow more. If he doesn't, expectations about public spending may need to change.
The spending review matters to education because so much of it is publicly provided and publicly financed. Schools, colleges and universities all have social missions and all depend on government for most of their income. The division of the education and skills budget between the different sectors may be outlined in July but may well be deferred until a later date, possibly until some time after a 2005 election. Who knows? By that point, all bets are off.
The Government made its own case for funding the learning and skills sector in its skills strategy. This explains how education and training create wealth by helping people become more productive. Raising productivity is the long-term aim of the skills strategy, measured by Gross Domestic Product per hour worked. If the strategy succeeds, productivity will rise and GDP will grow. Growth in GDP - economic growth - widens the tax base and generates more income for government in the longer term.
But the case for funding colleges goes wider than this. Colleges are central to a number of government strategies, including skills for life, 14-19 reform, neighbourhood renewal and the expansion of higher education.
The contribution towards the inclusion of young people is particularly striking. Fifty per cent of 16-year-olds leave school without a full level 2 qualification. By the age of 19, half of this group - 25 per cent of the age cohort - have gained what they didn't get in school. Most of them have done it in the FE sector. The population of 16-18 year olds will continue to rise in the next couple of years, which will only add to the pressure to raise level 2 achievement above the 75 per cent level.
Ultimately, the Government wants all adults to have a level 2 qualification. Secondary school reform may raise GCSE performance at 16 but perhaps a better return could be made elsewhere. More money in schools budgets might raise level 2 achievement. A more cost-effective approach might be curriculum reform and more money in colleges. Delivering the long-standing aim of fair 16-18 funding might be the most direct route to implement the skills strategy.
By July, half the population may be more interested in a football tournament in Portugal but the big issue for all the population will be the decisions on government spending made a couple of weeks later. Do you have a view? Make it known.
Julian Gravatt is director of funding and development at the Association of Colleges