Earlier today, Chancellor Rishi Sunak delivered his Spending Review to parliament to outline the Government’s strategy to tackle the impact of COVID-19 to our country. Here, PM+M’s managing partner Jane Parry provides her thoughts on what this means for businesses…
The Chancellor announced the Government is spending £280bn to get the country through coronavirus crisis. This is to a backdrop of the OBR’s forecast that the economy will fall by 11.3% and with a budget deficit of £394bn (or 19% of GDP) this year thanks to the COVID support measures and the reduction in tax receipts. To put that into context, that is more than twice the size of the deficit incurred during the 2008 financial crisis. However, Mr Sunak claimed his measures are making a difference, have saved jobs and supported businesses.
The announcement that £3bn will be spent on the new restart programme for those who have been unemployed over a year was welcome. His admission that not every job can be saved – and his prediction that unemployment would peak at 2.6m – was candid. This is a scary figure but not a surprising one.
His decisions around public sector wages were widely pre-publicised and included a pay rise for doctors and nurses in the NHS whilst pay rises in the rest of the public sector will be paused next year. He countered that by confirming people on low pay will get a pay rise. In practice, this means that anyone earning less than the median wage, £24,000, will get a pay rise of £250, whilst the National Living Wage will rise by 2.2% to £8.91 per hour which will benefit around 2m people next year.
He also announced that day-to-day departmental spending will increase by 3.8%, including a rise of £6.6bn to the core health budget, which he said is the fastest cash rise in cash terms in 15 years.
The decision to abandon our 0.7% target and spend 0.5% of national income on overseas aid next year is a controversial one. He said that spending so much on international aid is difficult to justify with borrowing is so high. Many would disagree with that. However, even with this new target, the UK will still be the second biggest aid spender in the G7.
I welcome the launch of the new infrastructure bank, but only time will tell what impact it will have as we need to see the detail. That should come in the new Infrastructure Strategy and will show how the £100bn in capital spending will be allocated. This is the same for the new £4bn ‘levelling up’ fund which will be managed by the Treasury, Department for Transport department and the Ministry of Housing, Communities and Local Government. It sounds great in theory but the ‘holistic approach’ he claimed it will take does need more clarification as do the new immigration and planning systems.
All in all, this spending review threw up no big surprises. He’s in a difficult position as we are still in the midst of the pandemic. He emphasised that the key to us emerging from it is intact is for Government support to continue and for businesses, people and communities to be at the heart of everything it hopes to achieve.
What he didn’t talk about at all is how all this spending will be paid for. With widely trailed proposals for a reform of pension tax relief and increases in capital gains, we are likely to see some significant tax changes in the Spring Budget.