Spending Review 2020 Main Announcements

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January 23rd 2021
Tax Week 42
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Spending Review 2020 Main Announcements

Chancellor Sunak outlined government spending and forecasts for the economy.

The Spending Review was delivered earlier by Chancellor Rishi Sunak and it, after a period of major disruption to the economy and huge unforeseen expenditure, highlighted what people already expected.

According to the Office of Budget Responsibility the country's GDP is to contract by 11.3 percent - a 300 year record. However, with optimistic news of vaccine development from multiple providers the forecasts predict a 5.5 percent growth in GDP next year (2021). This is likely due to the widespread rollout and easing of restrictions being from the second half of the year.

Forecasts predict the economy to recover to a level seen prior to the pandemic by the end of 2022.

£280 billion has been allocated so far in 2020 toward pandemic relief costs - pushing borrowing to near £400 billion for the fiscal year (19 percent of GDP). A startling figure when not very long ago a £100 billion borrowing total would be shocking.

Unemployment by quarter two of 2021 at 7.5 percent and then start to fall - again likely due to easing of restrictions timed with vaccine rollout.

As predicted there will be public sector pay freezes, but these will not hit those currently earning below £24,000 - which accounts for most people in public sector jobs. NHS workers will also still receive a pay rise next year but all other public sector will see the freeze in pay.

The health budget will be increased by £6.6 billion next year which will expand the reach of the NHS via 50,000 extra nurses and the ability to service 50 million extra GP appointments. The NHS will also get £2.3 billion for capital expenditure investments such as new MRI machines and CT scanners. The fund will also provide for expansion of hospitals.

The national living wage (basically the minimum wage, but not the 'real living wage') will be increased to £8.91 from £8.72 currently. The jump is not huge, but it will now apply to people aged 23 and over, rather than 25 and over before. This equates to a near £350 pay rise for the average full time worker on the living wage.

Government departments will see spending increases equivalent to 3.8 percent, whilst more money will be provided to the devolved governments of Scotland (£2.4bn), Wales (£1.3bn) and Northern Ireland (£900m).

Education budget will swell to provide £2.2 billion extra for schools, £291 million for further education and £1.5 billion to renovate colleges. Part of the pandemic response included an ability for people to retrain/learn new skills via the lifetime skills guarantee - this will have £375 million allocated toward it.

Policing will be provided with an extra £400 million immediate to hire 6,000 new officers, with an additional £4 billion spread over the next four years for prison expansion with an 18,000 increase in prisoner capacity.

The home building fund mentioned a few months ago will be allocated £7.1 billion with capital spending next year £27 billion more than the previous year. An Northern National Infrastructure Bank will be set up to oversee new UK-wide private sector investment projects.

Not much is known about how the government is to balance the books with the increased spending, with Sunak already having stated there will not be a return to austerity. However, for now, local councils are being allowed extra leeway to increase charges for council tax.

Councils will also receive £5.3 billion in increased funding to spend on local projects and social care.

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