The UK government’s Spending Review 2020 (SR20) was formally announced by the Chancellor of the Exchequer, Rishi Sunak, on 25 November 2020, although some key elements had already become public knowledge, courtesy of a series of well-orchestrated leaks to the mainstream media. The details were further laid out in a 116-page accompanying official document. In defining its chosen areas of targeted spending over the coming months, the government inevitably prioritised the funding of key public services at the frontline in the continuing battle against Covid-19, in addition to a longer-term National Infrastructure Strategy aimed at economic recovery through infrastructure investment and job creation. As is usual with a Spending Review, individual departmental budgets for 2020-21 and block grants for the devolved administrations in Scotland, Wales, and Northern Ireland also featured as part of the wider package.
In the Chancellor’s own words, the UK is facing an “economic emergency”, thereby justifying unprecedented levels of government borrowing and spending in the face of a projected shrinkage of GDP by 11.3 per cent in 2020- the largest annual fall since the Great Frost of 1709. Despite the billions in extra investment promised, way over that would normally be expected in the absence of Covid-19, some people seem unhappy with SR20’s decisions. To better understand their unhappiness, it is now necessary to delve into the details of what is on offer.
To start with, SR20 provides an additional £38 billion support package to the public services for 2020-21, bringing the total spend for this purpose over the period to £113 billion. A further £55 billion has been promised for 2021-22, including £21 billion of contingency funding, justified by the “uncertain trajectory” of the Covid-19 pandemic. The NHS emerges as a clear winner, with generous funds being allocated for mass screening and Test and Trace, and for the supply of personal protective equipment, key medicines, and an effective Covid-19 vaccine when available, while “NHS Recovery” from the pandemic has not been overlooked.
The government has further allocated £100 billion in capital expenditure for 2021-22, to speed up economic recovery. The National Infrastructure Strategy will focus on upgraded public transport systems (roads and rails), rebuilding of hospitals, schools and prisons, flood defences, digital infrastructure (fibre broadband), and green energy schemes. Given the UK’s recent experiences with major infrastructure projects, such as HS2 and Crossrail, and notwithstanding the speed with which Nightingale Hospitals have been set up more recently, SR20 rightly emphasises that “investments in infrastructure must be matched by faster, smarter delivery”, guided by the so-called “Project Speed”.
Apart from new jobs that will be created through new infrastructure projects, two particular schemes have been designed to avert the looming threat of mass unemployment. A £2.9 billion Restart scheme, over three years, will provide “intensive and tailored” support to those out of work for 12 months or more, supplemented by £1.4 billion to increase Job Centre Plus capacity, as part of the Plan for Jobs programme. A sum of £1.6 billion will be given to the Kickstart programme, to create new state-subsidised jobs for young people who are currently claiming Universal Credit.
The Ministry of Defence is another clear winner. Over £24 billion in cash terms over four years has been allocated to defence spending, including £6.6 billion in R&D, in order to maintain a “cutting-edge military and world-class intelligence community”. Defence modernisation is meant to make the UK a more secure nation and to enhance its global presence, in the process making it the largest European contributor to NATO.
The unpopularity of SR20 within some quarters relates to its choice of losers. All public sector employees, other than those working in the NHS (around one million in all) or those receiving less than £24,000 per year (the national median annual wage), will have their pay frozen temporarily, for 2020-21 at least. This comes at a time when public sector pay has actually fallen by around 1.5 per cent when adjusted for inflation. The losers include teachers, the police, firefighters, armed forces personnel, civil servants, and local government staff. This pay freeze has been justified both on grounds of economic necessity as well as on a need for levelling the playing field by sharing the pain with private sector employees who have been hit hard by the pandemic. The National Living Wage has been increased by just 19 p, to £8.91 an hour. And when it comes to welfare support, the concessions cannot be considered overtly generous, with a promised £20-per-week increase in Universal Credit and Working Tax Credit for 2020-21.
Another area of contention is that the government has backtracked on its 2019 manifesto promises, by reducing the UK’s overseas development aid (ODA) contribution from 0.7 per cent of gross national income to 0.5 per cent for 2020-21, amounting to savings of around £4 billion. This means that around £10 billion will still be available for ODA for 2021-22. But then ODA is not entirely a zero-sum game, and if done properly often yields mutual benefits for both donor and recipient.
To sum up, the Spending Review clearly benefits key public services, including healthcare, education, public transport, local government, and the justice system, while establishing a medium-term strategy for infrastructure investment and job creation. There is a welcome focus on climate change and environmental protection, in the lead up to the UK’s 2050 zero emissions target. However, it also panders to conservative instincts that pit the public sector against the private sector and favour increased spending on defence, as well as to libertarian sentiments that are unfavourably disposed toward minimum wages, welfare benefits and overseas aid. Furthermore, there is little in the way of renewed hope for the beleaguered hospitality, leisure and accommodation sectors, an indispensable part of the nation’s fabric, and for the three million seemingly forgotten self-employed, The expectation, as always, is that this new bout of spending will be deployed wisely and efficiently and to maximum benefit, in the months of uncertainty that lie ahead.
Ashis Banerjee