2020 Spending Review: Debt - what debt?

 
24/11/2020


Tomorrow, 25 November, the UK Chancellor of the Exchequer Rishi Sunak will detail the government’s 2020 Spending Review, laying out departmental budgets and other fiscal measures for the 2021-22 financial year. In this blog, Atticus Communications unpacks the already announced measures and those anticipated in tomorrow’s statement.

Announced measures:

Defence
The UK Prime Minister, Boris Johnson, has already pledged a new four-year funding settlement for the military as part of a review of Britain’s foreign policy, containing £16.5 billion in new money and the aim to create 40,000 new jobs within the armed forces.

Infrastructure
The Chancellor is set to announce the UK national infrastructure strategy allocating £100 billion to the transport and climate sectors. In a further nod to the government’s ‘levelling-up’ agenda, the Chancellor is also expected to announce changes to the Treasury’s ‘Green Book’, which determines the value for money for government schemes and is said to favour London and the South-East currently. The North will also be home to a new national infrastructure bank and campus for the Treasury, as part of a wider initiative to shift civil service jobs outside London.

Brexit
As a result of Brexit, certain departments within the UK Civil Service are expected to require additional funding as a result of their increased responsibilities. In light of this, we expect departments such as the Home Office and HM Revenue and Customs to receive additional funding.

NHS
The Chancellor pre-announced £3 billion in additional funding for NHS England, in an attempt to help tackle the backlog in treatments created by the coronavirus pandemic, with £500 million of this allocated to mental health services. The funding will last for one year with the devolved administrations in Scotland, Wales and Northern Ireland receiving equivalent funding via the Barnett formula.

Prisons
The Treasury pre-announced an additional £1.25 billion for prisons across England and Wales. This comes on top of funding previously announced, resulting in a total of £4 billion. This spending commitment aims to create 18,000 new prison places across England and Wales over the next four years.

Sports
The final confirmed new measure thus far is a £300 million rescue package for sports in England that have been impacted by the absence of spectators due to coronavirus, made up predominantly by low-interest loans. On Monday, the Prime Minister announced that after the current lockdown, in tier 1 and 2 areas, spectator sports and business events will be free to resume inside and outside. However, these events will take place with capacity limits and social distancing measures in place.

Anticipated Measures:

Public sector salary freeze
The first of these is the rumoured freeze in public sector salaries. The freeze, which would exempt NHS workers, would last for one year and save £2billion. It is among a variety of measures reportedly under consideration by the Treasury to control the public finances.

International Development Budget
Further potential announcements include a temporary cut in the UK’s foreign aid budget, from 0.7% of GDP to 0.5%. Though the 0.7% figure is a legal commitment, it contains provisions to be cut temporarily in times of economic emergency. The One Nation Caucus of Conservative MPs released a statement on 22 November calling on the government to maintain the 0.7% spending target on international aid.

Universal Credit
Since the beginning of the pandemic, Universal Credit claimants have received a £20-per-week boost to their payments, saving thousands from falling into poverty. The government is reportedly considering extending the boost, which is due to end in April 2021.

The road ahead
New economic forecasts are expected to be published on Wednesday, setting out the outlook for the economy. According to Office for National Statistics (ONS) data, the Central government net cash requirement from April to September 2020 reached £246bn, nearly three times higher than any April to September cash requirement period on record (records began in 1984).

Despite recent positive news on potential vaccines, the pandemic remains far from over, with a long and difficult winter likely ahead of us. Furthermore, since borrowing remains extremely cheap, there is no fiscal need to start cutting the deficit now. The Chancellor has explicitly ruled out a return to austerity, so it is likely that when the time comes, tax rises will instead be required to address the deficit. However, they are unlikely to be announced on Wednesday as taxes are not announced in a spending review.

From defence to climate change, and delivering on ‘levelling-up’, what we have seen so far from the Spending Review are signs of a government that is keen to deliver on its electoral promises. As we stand on the cusp of Brexit and an anticipated vaccine that will hopefully bring back some semblance of normality, it remains to be seen if the government will continue to “Spend, Spend, Spend” or tread cautiously on the challenging path ahead.

To find out more about how the spending review will impact your organisation, get in touch with Atticus Communications at: info@atticuscomms.com