A major one-year spending review will be held on Wednesday 25 November in the midst of England’s second lockdown.
Chancellor Rishi Sunak will set out Whitehall budgets for 2021/22 and block grants to Scotland, Wales and Northern Ireland in a lunchtime statement to the House of Commons.
Top of the agenda looks set to be a pay freeze for almost 4million public sector workers including teachers, police and Armed Forces.
Otherwise, we shouldn’t expect massive cuts.
We’re still in the pandemic, so the Review was reduced from four years to one year to kick the worst news into the long grass.
But some areas could be painfully pared back – including foreign aid.
(Image: Getty Images)
Perhaps most crucial of all, the review will arrive alongside doom-mongering forecasts about the impact of coronavirus on the economy.
It’s important to know what the Spending Review is actually about.
It’s separate to the Budget – which will only bring all the usual changes to tax and spending in early 2021.
That means no changes to income taxes, VAT, minimum wage, or things like alcohol, cigarettes or car tax on Wednesday.
So what will it actually mean for you in key areas? We’ve taken a look.
A pay freeze for 4million workers in 2021
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The UK has 5.5million public sector workers, of which just under 1.8million work in the NHS. Now their pay could be frozen.
Unions branded the plans for 2021/22 an “insult” that will destroy morale while Britain is still battling the coronavirus pandemic.
Rishi Sunak is widely expected to announce the plan – a real-term cut once inflation is included – in next Wednesday’s spending review.
It would include teachers, Armed Forces, police, Whitehall civil servants, council and government agency staff – but NHS staff are said to be exempt.
Treasury sources last night failed to deny the plan, and said it would be “unfair” to let public pay rise more than the private sector.
In the summer Mr Sunak said departments should show “restraint” and ”retain parity with the private sector” – where wages have tumbled.
Yet millions of public sector workers are still recovering from seven years of pay freezes and caps under Tory austerity.
Precise pay rises are set as part of discussions with review bodies. But the broad envelope of what Whitehall departments can spend overall next year looks set to be outlined by Mr Sunak.
The full scale of the coronavirus crisis
(Image: UK Parliament/Jessica Taylor)
The biggest headlines could well come from major forecasts by the Office for Budget Responsibility, the government’s watchdog.
These will lay bare just how much the nation is borrowing to dig its way out of the crisis.
Reports suggest they’ll show the UK is facing the worst hit to its economy in more than 300 years, with fears the effects will last until 2024.
The Financial Times claimed the report would show the UK economy contracting 11% in 2020.
Public sector debt hit £2.08trillion by the end of October and is now 100.8% of GDP – a ratio unseen since the early 1960s.
Mr Sunak said today: “Over time it’s right we ensure the public finances are put on a sustainable path.”
Austerity – in some parts of the UK
Boris Johnson has insisted there’ll be no return to austerity – but he could be forced to impose it on some areas in all but name.
Some areas have been protected with multi-year deals, including health, defence and schools.
But the areas that aren’t protected, like courts, prisons or local government, could see a further round of cuts, the IFS think tank said.
Worse, those are the same areas that were cut so brutally in the first round of Tory austerity under David Cameron.
Ben Zaranko, Research Economist at the IFS, said: “The Chancellor’s decisions will determine whether austerity has really ended across the public sector.
“The Chancellor will also need to pencil in spending totals up to 2025−26. These could provide some indication over the extent to which he is planning a fresh squeeze on public spending after the current crisis, or whether he might instead opt for substantial tax rises at some future Budget, or allow higher levels of borrowing to persist.”
Aid spending could be slashed
Britain’s foreign aid budget could be temporarily slashed in a move that would cut off billions of pounds to the world’s poorest countries.
Plans have been drawn up to reduce the budget from 0.7% to 0.5% of national income – more than £4billion.
That is on top of a £2.9bn cut that was announced due to GDP being lower than previous years.
Previous Prime Ministers stood by the pledge through thick and thin as an emblem of Britain’s soft power, but not Boris Johnson.
He and his spokesman pointedly refused to rule out the cut, saying it was right to reconsider in a time of financial crisis.
Investment and infrastructure – including £1.6bn on roads
(Image: Getty)
The Chancellor will announce various boosts to infrastructure including £1.6bn for local roads in 2021-22 to tackle potholes, congestion pinch-points and other upgrades.
The government will publish its National Infrastructure Strategy alongside the spending review with a wide-ranging brief on transport, housing and digital infrastructure.
And the Treasury’s ‘Green Book’ rules on value for money will be torn up – with more focus on “the consideration of regional impacts that policies have on places.”
That means a bid to fulfil the pledge to “level up” spending in the Midlands and North.
The government says it will publish the terms of the UK Shared Prosperity Fund, which “will target funding at left-behind places and people in need, including towns, coastal communities and former industrial heartlands” – replacing funds which before now came from the EU. This will include £220 million next year.
His slogan is to “build back better” from coronavirus and “level up” across the country.
But with so many irons in the fire already, it’s unclear exactly what might be announced – or re-hashed – in the spending review.
£16.5bn for defence
A time for financial crisis has not stopped a blowout of defence spending.
The Ministry of Defence, which faced a £14bn black hole, has been exempted from the spending review and given a four-year £16.5bn deal.
It will allow investment in AI, cyber warfare and a new ‘Space Command’ – though some outdated equipment will have to be ditched.
The actual Integrated Review won’t be unveiled as part of the Spending Review, but it’ll be a useful comparison if other areas get cut.
Benefits and Universal Credit
Pressure is mounting on Rishi Sunak to make a £20-a-week Covid boost to Universal Credit permanent.
If he doesn’t, 6million households will see a massive £1,040-a-year welfare cut from April 2021.
He also faces pressure to boost benefits for 2million people still on ‘legacy’ benefits, most of them disabled, who didn’t get the £20-a-week boost this year.
On current projections, they’re set to get a rise of just 0.5% despite pensions being due to rise 2.5%.
Mr Sunak is understood to be “open to the idea” of keeping the £20 but is refusing to confirm it.
Benefit rates are usually announced in November, meaning an announcement must come soon. They may not be unveiled in the spending review itself.
The NHS
NHS England already has a day-to-day funding settlement running up to 2023−24
But the IFS think tank believes the NHS budget “will almost certainly be revised upwards” to deal with coronavirus.
In the time of a pandemic, it would be a political open goal for the Chancellor to shoehorn in some kind of announcement for hard-pressed hospitals.
One open question is how they’ll fund free parking for staff.
Ministers claim free parking is already there, but some Trusts are withdrawing it after government guarantees for cash ran out.
Schools
Schools spending in England already extends up to 2022−23, but the IFS suggests they will receive extra funds for “catch-up learning”.
The Chancellor had been under pressure too to announce help for children over the school holidays, but that’s now been confirmed.
Around £400m will be split between a Covid winter food fund and a longer-term programme for next year.
Brexit
The transition period ends on December 31 and just six weeks out, we still don’t have a trade deal with the EU.
That will mean a huge economic shock as tariffs and customs paperwork kick in on the border, at ports like Dover, and on billions of everyday goods.
According to the IFS, the government has already spent £8bn on Brexit preparations in the last five years and could need more.
What’s more, some departments will need more money in the long term to pay for work that was previously done by the EU.
That means more funding for the Environment Department to fund food standards or agricultural agents and HMRC for customs agents.
