Once upon a time there was a thing called a budget where a man called the Chancellor of the Exchequer stood up and announced what the government would spend money on and how they would finance their plans. Then it was decided that it would be wise if we introduced a thing called a Spending Review. This would be a long-range view of the government’s plans over a five-year period.
Then there was COVID.
Understandably, the Chancellor decided that, in the current circumstances, looking five years ahead was a bit pointless, and so he restricted himself to one year. And that's how we ended up with the government announcing all their spending plans for next year, without ever mentioning how they were going to pay for any of it. Probably necessary, but odd, nonetheless.
So, what did the Chancellor say today? It divided into four main headings: the state of the economy, public sector pay and spending, support for business and jobs, and international aid and defence. Let’s look at them in turn.
1. The Economy
The speech started with a series of statistics about the impact of the crisis so far on the economy. And pretty shocking they were.
- The 11.3% shrinkage of the economy by the end of 2020, is the largest for 300 years, and despite the fact that growth is forecast at 5.5% and 6.6% for the next two years, the economy will not reach its pre-COVID state until Q4 2022.
- Unemployment will reach 7.5% with 2.6m people jobless by Spring next year.
- Borrowing this year will be the highest ever in peacetime at £394bn and UK debt will be 91.9% of GDP, rising to 97.5% next year.
2. Public sector pay and spending
Having trailed (leaked) a freeze in public sector pay, the Chancellor could appear to be generous by announcing that those earning less than £24,000 will get an increase of £250. The NHS was also singled out for special treatment, with over a million doctors, nurses and other NHS workers receiving a rise. The National Living Wage will rise to £8.91/hour, an increase of 2.2%.
The NHS was also the target of extra public sector spending, with a rise in the health budget in England of £6bn, including an extra £3bn to help with COVID. A total of £18bn will be spent on vaccines, PPE and COVID testing. Add in £1bn to handle NHS backlogs, £500m for mental health services in England £325m to replace old diagnostic equipment and extra grant funding for social care of £300m, and you have a costly package. Whether it is enough is another matter.
Elsewhere in the public sector, there was an extra £2.2bn for schools in England, £2bn for public transport, £3bn for local authorities, £4bn on prison places, £400m for 6,000 new police officers and £250m for councils to tackle rough sleeping.
3. Support for business and jobs
The Chancellor announced a range of spending measures to try to get the economy moving and to shore up jobs:
- A £4bn levelling up fund for local infrastructure improvements projects and a new infrastructure bank for the UK to be established "in the North of England".
- £4.6bn to help people back to work, including £2.6bn for the Restart scheme (those out of work for 12 months or more), £1.6bn for the Kickstart scheme (young jobless) and a £375m skills package.
4. International aid and defence
I may be accused of being political just by putting these together, but the juxtaposition is just too tempting:
- The Chancellor announced that he is cutting the overseas aid budget from the 0.7% enshrined in UK law and the Conservatives' manifesto, to 0.5%. That’s a cut of £5bn. He is, perhaps rightly, calculating that with the public finances in such a parlous state, enthusiasm for overseas aid will be diminished. Clearly not everyone agreed with him, and before the afternoon was out, the Foreign Office Minister, Lady Sugg, had resigned.
- Meanwhile the increase in defence spending of £15bn will create a new centre for artificial intelligence, a national cyber force and in total 40,000 new jobs.
And with that, other than to announce some funding for the devolved administrations to boost recovery, he was off, leaving behind him one question hovering in the air…. "How are we going to pay for….."
Alan Nelson is an author for accountingcpd. To see his courses, click here.
You need to sign in or register before you can add a contribution.