The even more Spending Review

Today the Chancellor Rishi Sunak delivered the Government’s Spending Review, to allocate spending across departments and projects.

Usually a spending review covers five years. Today’s covered just next year, a sign of the C19 disruption to the government’s plans and finances. 

In setting out the government’s priorities, the Chancellor emphasised that the health emergency is far from over and the economic emergency has only just begun.  

To tackle these emergencies, his spending review was focused on:

  • protecting lives and livelihoods
  • delivering better public services 
  • investing in infrastructure 

But before that, a 300-year low

The Chancellor outlined the that we are on track to borrow some £400bn this year alone, spending some £280bn on fighting C19 over the past 11 months. Public spending is now 60% of GDP, a level not seen since WW2.  

In making the case for the record levels of spending, the Chancellor pointed out that unemployment is lower in the UK than in France, Italy, Spain, Canada and the US and that business insolvencies remain lower than last year. 

However, the Office for Budget Responsibility, the Treasury’s watchdog, predicts the economy will have shrunk by 11.3% by the end of this year. The worst performance for some 300 years. What’s more, the economy is likely to remain 3% smaller than pre crisis even in 2025. 

While cash has never been so readily available, the Chancellor knows he must get the budget deficit down at some point. He also knows drastically slashing spending at this point will be politically unpopular and likely to impact lives and livelihoods in the short-term. 

So, next year the Treasury has made some £55bn available to continue to battle C19 and its impact on the economy. 

Jobs first

Amid warnings that unemployment, currently at 4.8%, could reach 7.5% or 2.6m people next summer, the Chancellor has unveiled a £4.3bn jobs package to get one million people back into work. 

Some £2.9bn will go on a restart scheme to help the long-term unemployed to find jobs by giving them intensive, tailored support. 

Another £1.4bn will be allocated to Job Centres, to get the short-term unemployed back into work. 

These schemes will start on 31 March 2021, effectively replacing furlough. 

Delivering better public services

The Chancellor also produced record spending increases across many public services and government departments.  Overall, total departmental spending next year will be £540bn, a 3.8% or £15bn rise in real terms.  This is the fastest growth rate in 15 years.  

  • The NHS will get an extra £2.3bn 
  • Social care will receive £1bn more  
  • Schools get an extra £2.1bn next year
  • The Scottish government will get an extra £2.4bn
  • Wales will receive £1.3bn extra 
  • Northern Ireland will get £900m
  • There is an extra £250m to end rough sleeping

Once in a generation investment in infrastructure 

In keeping the government’s earlier commitments on infrastructure, the Chancellor announced capital spending of £100bn on roads, houses and other infrastructure. 

This is some £27bn more than last year and the highest public investment in infrastructure in 40 years. 

Spending will cover among other things:

  • Broadband and mobile connectivity 
  • A £4bn levelling up fund, for local communities to make direct bids for funding 
  • 800 zero emission buses 
  • A new infrastructure bank, head quartered in the north of England
  • Investment in research and development 

The cuts

To help pay for some of these record increases, the Chancellor announced a public sector pay freeze for everyone other than doctors, nurses, NHS workers and those on or below the UK median wage of £24k. 

He will also cut the foreign aid budget from 0.7% of GDP to 0.5%. 

Ominous in its omissions

But, other than these few cuts, the Chancellor made scant remarks on how he was going to pay for these huge increases in public spending. 

Come the Spring, expect taxes to rise.  Significantly.  

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