In yesterday’s Spending Review the Chancellor Rishi Sunak set out the government’s fiscal priorities for 2021-22 – a task not short of challenges. As the pandemic lingers, the country remains in economic crisis mode: the Office for Budget Responsibility has forecast that GDP will fall by 11.3% this year. Whilst 2021 is expected to return us to growth, the economy is not likely to reach pre-crisis levels before the end of 2022. Sunak faced a tough balancing act between stimulus for suffering businesses; help for overstretched frontline workers; and the Conservative Party’s desire to start delivering on their election promises.
COVID: one more heave
Despite the somewhat bleak figures released by the Office for Budget Responsibility, the Chancellor struck an optimistic tone on the pandemic. Thanks to advancements in vaccine development, there is finally light at the end of the tunnel. With this in mind, he set out a fiscal package to help us climb the last COVID mountain.
The government’s strategy on COVID is threefold: responding to the immediate impacts of the pandemic; invest to kickstart the UK’s economic recovery; and link this ‘rebuilding’ of the economy to their environmental and ‘levelling up’ objectives.
The Chancellor has confirmed an additional £38 billion for public services to continue to fight the pandemic this year. This brings the total spending on the COVID-19 response this year to over £280 billion. The Treasury will also provide a further £55 billion of support for the public services response next year to control and suppress the virus and support jobs and businesses.
The government is now keen to push along its domestic policy agenda beyond COVID – with Brexit looming, Boris Johnson’s team will soon have delivered on its biggest promise. So what next to keep the ‘Red Wall’ on side, whilst pleasing the Tory core demographic?
Our top 5 takeaways from this Spending Review are:
- A continued effort to see an “infrastructure first” approach with Net Zero front of mind
The National Infrastructure Strategy was first expected in Sunak’s March budget but was delayed due to the pandemic. Now the document has been published alongside the Spending Review. It affirms the Government’s intentions to ‘level up’ the country, strengthen the Union and decarbonise the economy. To accelerate the delivery of infrastructure projects, it pledges:
- A new £4bn cross-departmental Levelling Up Fund to invest in local infrastructure in England – crucially, projects that are green-lighted within this fund must have the support of their local MP.
- £4.2 billion to support the largest city regions outside of London with intra-city transport settlements
- £1 billion to establish carbon capture and storage in four industrial clusters
- A new UK infrastructure bank, based in the North of England, to co-invest alongside the private sector to support levelling up and net zero
- Reform of environmental regulations to deliver a new framework for assessing environmental impacts
- Making the UK a “scientific superpower” with R&D investment
The government wants to elevate Britain in the leagues of ‘scientific superpowers’ after Brexit. To set out its stall as a country at the forefront of innovation and technological developments, the spending review pledges almost £15 billion for Research & Development (R&D) next year. This will boost the UK’s existing research base and increase capacity and international competitiveness.
The government will also invest £260 to continue digital infrastructure programmes, including the Shared Rural Network for 4G coverage, full network fibre and the 5G diversification and testbeds and trials programme.
- The restart programme and continued investment in skills, jobs & training
The Chancellor has announced a new 3-year £2.9bn “intense and tailored” ‘Restart’ scheme to support more than one million unemployed people to find work. The Department for Work and Pension’s budget also includes funding for measures announced in the ‘Plan for Jobs’ which focuses on job entry support measures for young people. The Kickstart Scheme will be financed with £2bn to create new, fully subsidised jobs for young people across the country to mitigate the impact COVID-19 had on their career prospects.
- An ongoing commitment to the ‘levelling up’ agenda
Levelling up remains a key policy priority at the heart of the Conservative government. This is reflected in the highest sustained level of infrastructure funding for than more than 40 years and a new National Infrastructure Strategy. Measures include:
- £1.2 billion for faster broadband across the UK
- £58 billion of investment confirmed for roads and rail
- Multi-billion capital investment to deliver on the Government’s commitment to build 40 hospitals by 2030 and rebuild 500 schools
- £5.2 billion for flood and coastal defense investment
The ‘levelling up’ agenda is a crucial element of the government’s re-election strategy. If the Tories want to hold on to their new-found heartlands in the North, they need to deliver. The fact that the government is planning to headquarter the new infrastructure bank in the north is symbolic of the government’s plans to hold those northern seats gained in 2019.
- The tough choices made on public sector pay and Foreign Aid
The Chancellor pledged a pay rise to over a million nurses, doctors, and other NHS staff to reward their hard work during the pandemic. Those on the lowest incomes in the public sector, who earn below the median wage of £24,000, will also receive a pay rise of at least £250 next year. But the rest of the public sector will not receive a pay rise next year.
Overseas aid will be reduced to 0.5% for 2021 with a plan to return to 0.7% when “the fiscal position allows.” The Chancellor also confirmed the previous announcement made by the Prime Minister to invest £24 billion in defense, which is the biggest sustained increase in 30 years.
This has upset a number of Conservatives within the party left-leaning One Nation Caucus, but Number Ten will see this as a small political price to pay for trying to balance the books. Baroness Sugg, DFID Minister for Sustainable Development has also tendered her resignation in protest to the cut in Foreign Aid.
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