Spending reviews are normally a key date in the political calendar. They are an irregular occurrence as they have significant long-term implications. As such, they can normally expect to receive widespread coverage, with significant build-up and post-event analysis.
This spending review was very different. Overshadowed by the Government announcing the revised tier regulations to combat Covid-19 this week. As a result, the media cycle is dominated by Covid-19 right now. Next month Brexit will likely be front and centre as we find out whether the UK and EU have been able to agree a trade deal.
This shift to other issues is very unfortunate. The figures underpinning the spending review will have an impact on generations to come. This year we’ve seen the largest contraction in the economy (11.3% of GDP) in the last 300 years. Government borrowing has risen to a peacetime record of £394bn. To put that in context, the spending cuts post 2010 amounted to c£110bn. This is to say nothing about the 2.6m or 7.5% of people who could be out of work by Spring 2021.
Under any other circumstances, such levels of debt would be catastrophic. But with interest rates at historic lows, the Government is able to service this debt. Nevertheless, it’s still quite shocking that further measures are not being taken to try and address this level of debt beyond those headline announcements around international aid and a public sector pay freeze – even those measures were caveated. Why does this matter? Because regardless of your political persuasion, a government is not going to be able to support your priorities, if in the future it’s still struggling to pay down a mountain of debt.
Of course, in the short-term there is actually some good news. The Government has made infrastructure and sustainability key planks of its spending review commitments. There is a new UK infrastructure bank to invest in the levelling-up agenda, along with a £4bn Levelling Up Fund. As well as £4.2bn to support transport connectivity between the largest city regions outside of London.
The new Infrastructure Strategy also includes £58bn for road and rail investment, £1.2bn to support the roll-out of gigabit-capable broadband; and £22bn funding for HS2.
We also see some big giveaways in housing, with a new £7.1bn National Home Building Fund, which is expected to support the delivery of up to 860,000 homes across the country. The Green Homes Grant voucher scheme has been extended, with a further £320m of funding for 2021-22.
The Chancellor is also looking to provide an extra £3bn of additional funding for local authorities to meet the pressures of Covid-19 and £254m of additional resources to tackle rough sleeping and homelessness.
In recognition of the anticipated long-term unemployment for hospitality workers, the Chancellor has announced a three year £2.9bn Restart Scheme to help support more than one million unemployed people find work. The spending review also confirms funding for over 250,000 Kickstart jobs, which are fully subsidised roles for young people across the country.
It’s much easier to be a popular Chancellor when the spending taps are on. The partial freeze announced on public sector pay and cuts to international aid are unlikely to affect his popularity with the general public, given the overall narrative of spending this week. However, it will be interesting to see if his popularity holds up in the coming years given that interest rates will inevitably rise.
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