UK chancellor's review sets out government spending plans

The UK government published its Spending Review 2020 on Wednesday, alongside forecasts for the economy made by the Office for Budget Responsibility.

Chancellor of the Exchequer Rishi Sunak told MPs in the UK Parliament's House of Commons on Wednesday that "our health emergency is not yet over, and the economic emergency has only just begun".

To protect "people's lives and livelihoods" Sunak set out plans for an additional £38 billion for public services to continue to fight the pandemic this year, taking the total government spending on the COVID-19 response this year to more than £280 billion. A further £55 billion is allocated to departments next year to support coronavirus recovery.

The review also said that public sector pay would be "restrained and targeted in 2021-22", with NHS workers to receive pay rises and 2.1 million public sector workers earning less than £24,000 receiving a minimum £250 increase.

Additionally, the government said that the business rates multiplier will be frozen in 2021-22, "saving businesses in England £575 million over the next five years".

The settlement for the Department for Business, Energy, and Industrial Strategy includes £50.7 million "for business support programmes to improve SME productivity through leadership, management, and technology adoption".

Infrastructure spending

The chancellor announced a series of measures including a new cross-department £4 billion Levelling Up Fund for England that aims to reduce geographical inequalities. Investment would be up to £0.8 billion for Scotland, Wales, and Northern Ireland, and the fund will invest in local infrastructure projects costing up to £20 million.

A new UK infrastructure bank is to be set up in the North of England to "support private infrastructure projects to help meet the government's objectives on economic growth, levelling up, and transitioning to net zero", the review said.

Other capital spending includes:

• Almost £19 billion of transport investment next year, including £1.7 billion for local roads maintenance and upgrades.
• Increases to research and development (R&D) spending with almost £15 billion in 2021-22, including funding for clinical research to support delivery of new drugs, treatments, and vaccines.
• £4.2 billion for NHS operational investment next year to allow hospitals to refurbish and maintain their infrastructure.

Apprenticeships and skills

The review sets out how the government will make available "£2.5 billion of funding for apprenticeships and further improvements for employers".

From August 2021, employers who pay the Apprenticeship Levy "will be able to transfer unspent levy funds in bulk to small and medium-sized enterprises (SMEs) with a new pledge function", the review document said.

Unspent levy funds will still expire after 24 months and the government will also introduce, from August 2021, a new online service to match levy payers with SMEs that share their business priorities, the review said.

Growth outlook

In its November Economic and Fiscal Outlook, the OBR predicts the UK economy will shrink by 11.3% this year — the largest drop in more than 300 years. It expects the pre-virus level of economic activity to be achieved by the end of 2022.

The OBR also said that in its central forecast, government support for public services, households, and businesses this year pushes the deficit to £394 billion, which is 19% of GDP and the highest proportion since 1944; debt rises above 100% of GDP for the first time since 1960 to 105%.

It predicts GDP to increase by 5.5% in 2021 and 6.6% in 2022.

CIMA made a series of recommendations to the government in advance of the Spending Review announcement.

— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.