The Spending Review 2020
SPENDING REVIEW 2020
DELIVERING THE BRITISH PEOPLE’S PRIORITIES
GOVERNMENT BUDGETS FOR THE FINANCIAL YEAR 2021-22
While the health emergency is not yet over, the economic emergency has only just begun.
So, today’s Spending Review delivers on the priorities of the British people
The government's immediate priority is to protect people’s lives and livelihoods as we respond to the coronavirus.
But we will also deliver
- - stronger public services
- - more hospitals, better schools and safer streets
. And deliver a once in a generation investment in infrastructure, creating jobs, growing the economy, and increasing pride in the places people call home.
This is a shared project
– a common endeavour to build a better nation to which every person and business in our country has a contribution to make.
That unfinished work, irrespective of coronavirus, continues at pace as we emerge stronger and more united from this pandemic.
The Spending Review 2020 is set in a difficult and challenging economic context
The Office of Budget responsibility (OBR) have forecast that the economy will contract this year by 11.3 per cent, which would be the largest fall in output for more than 300 years.
Even with growth returning, our economic output is not expected to return to pre-pandemic levels until the fourth quarter of 2022.
Due to long-term scarring, the economy in 2025 is now forecast to be around 3 per cent smaller than had been expected in assumptions which underpinned the March budget.
Additionally, despite the extraordinary support which the gove3rnment has provided, because of the damage done by COVID-19 to the nation's economy, unemployment is expected to rise to a peak of 7.5% (2.6 million people) in the second quarter of next year.
The economic impact of coronavirus has also caused a significant increase in borrowing and debt. In the OBR’s ‘central’ forecast, the UK is expected to borrow a total of £394 billion this year
– equivalent to 19% of GDP, the highest level of borrowing in our peacetime history.
We are forecast to still be borrowing over £100 billion (4% of GDP) even in 2025.
Due to these elevated borrowing levels, and a persistent current deficit, underlying debt is forecast to continue rising every year, reaching 97.5 per cent of GDP
But the government will address this challenge.
Responding to Covid-19
Allocating funding now to support the response to the pandemic will allow the government to control the spread of the virus, mitigate its harms and build the environment for the economy to bounce back strongly. SR20 confirms a further £38 billion to tackle the virus in 2020-21 and provides £55 billion to support the response to Covid-19 in 2021-22, including £2.6 billion for the devolved administrations. This funding is targeted in three key areas:
controlling and mitigating the virus: SR20 supports the mitigation of the virus by funding the development and purchase of successful vaccines, and NHS Test and Trace. The government has now made available £6 billion in total to research and procure Covid-19 vaccines
public services support and recovery: SR20 ensures public services across the UK have the resources they need to continue tackling the virus and address service backlogs
supporting jobs and businesses: SR20 continues to prioritise supporting jobs and livelihoods across the UK. The government is investing an additional £3.7 billion to build on the commitments made in the Plan for Jobs.
As the trajectory of the pandemic remains uncertain, SR20 sets aside £21 billion of contingency funding within the £55 billion support package for public services. This will allow the necessary support to be put in place and adapted through the course of next year.
Investing in a recovery for all regions of the UK
Alongside responding to the immediate impacts of Covid-19, SR20 provides investment to kickstart the UK’s economic recovery and rebuild for a stronger, greener, more equal future.
Building a stronger future
SR20 announces the next phase of the government’s infrastructure revolution with £100 billion of capital expenditure next year, to kickstart growth and support jobs. SR20 gives multi-year funding certainty for existing projects – such as school and hospital rebuilding, and flagship transport schemes – and targets additional investment in areas which will improve the UK’s competitiveness in the long-term, backing new investments in cutting-edge research and clean energy sources of the future.
Increased infrastructure investment is supported by a new National Infrastructure Strategy, which sets out the government’s plans to transform the UK’s economic infrastructure. It is based around three central objectives: economic recovery, levelling up and unleashing the potential of the Union, and meeting the UK’s net zero emissions target by 2050. These objectives will be supported by the creation of a new infrastructure bank to catalyse private investment in projects across the UK; as well as through a comprehensive set of reforms to the way infrastructure is delivered.
Levelling up and the Union
The economic recovery from Covid-19 must work for everyone in the UK and SR20 continues to drive forward the government’s commitment to level up opportunity across all regions. Infrastructure investment is a key part of this and SR20 targets investment to support regional cities as engines of growth through the Transforming Cities Fund and intra‑city transport settlements; rejuvenate towns and communities in need in England through the Towns Fund; and ensure each place is well connected through increased investment in road, rail and broadband.
The government is launching a new Levelling Up Fund worth £4 billion for England, that will attract up to £0.8 billion for Scotland, Wales and Northern Ireland in the usual way. This will invest in local infrastructure that has a visible impact on people and their communities and will support economic recovery. It will be open to all local areas in England and prioritise bids to drive growth and regeneration in places in need, those facing particular challenges, and areas that have received less government investment in recent years. The government will set out further details on how to support levelling up across the UK in the New Year.
By levelling up, SR20 also unleashes the potential of the Union, recognising that England, Scotland, Wales and Northern Ireland are stronger and more prosperous together. The Union will benefit from plans to create up to 10 freeports as hubs for global trade and investment; from UK-wide investment in areas such as mobile coverage; and from the UK Shared Prosperity Fund (UKSPF). Funding for the UKSPF will ramp up so that total domestic UK-wide funding will at least match receipts from EU structural funds, on average reaching around £1.5 billion per year. In addition, to help local areas prepare over 2021-22 for the introduction of the UKSPF, the government will provide additional UK-wide funding to support communities to pilot programmes and new approaches.
SR20 also confirms increased funding of £4.7 billion to the devolved administrations through the Barnett formula in 2021-22, including £2.6 billion related to Covid-19, on top of their combined baseline of over £60 billion. This provides an additional £2.4 billion for the Scottish Government, £1.3 billion for the Welsh Government and £0.9 billion for the Northern Ireland Executive. This builds on the unprecedented £16 billion of upfront resource funding the UK government has provided to the devolved administrations in 2020-21, in addition to their Budget 2020 funding for that year.
SR20 also delivers bespoke support, accelerating multi-year projects under four existing City and Growth Deals in Scotland to drive forward the local economic priorities of Tay Cities, Borderlands, Moray and the Scottish Islands. It also invests a further £1.1 billion to support farmers, land managers and the rural economy, and £20 million to support fisheries in Scotland, Wales and Northern Ireland.
To embed levelling up in future policy making, the government is changing how it invests in places. The government has published a refreshed Green Book to ensure that project appraisals properly analyse how proposals deliver the government’s key priorities, including levelling up, and how they will impact different places. The government is also bringing policy makers closer to the communities they serve by moving more civil servants out of London.
Green Industrial Revolution
The recovery from Covid-19 must be green. SR20 provides funding for the Prime Minister’s Ten Point Plan, which has set out the government’s vision to tackle climate change whilst simultaneously supporting hundreds of thousands of jobs across the UK. As transport is one of the highest-emitting sectors, SR20 prioritises investment to transition to zero emission vehicles, including by providing £1.9 billion for charging infrastructure and consumer incentives. SR20 also provides £1.1 billion to make homes and buildings net zero-ready.
To push the limits of what is currently possible, SR20 also invests in innovative clean energy technologies, building on existing UK strengths and venturing into exciting new industries. This includes £1 billion for a Carbon Capture and Storage Infrastructure Fund, and additional investment in low hydrogen carbon production, offshore wind, and nuclear power. This brings total investment to support a green industrial revolution to £12 billion.
Delivering on promises to the British people
Improving outcomes in public services
SR20 invests in public services to deliver the government’s priorities: to support a high quality, resilient healthcare system; to level up education standards and provide all learners with a quality education experience; to continue tackling crime to keep people safe; and to support local authorities in their efforts to serve local communities. Devolved administrations will receive funding in line with these investments. SR20:
reaffirms the historic long-term settlement for the NHS which provides a cash increase of £33.9 billion a year by 2023-24
reaffirms the government’s commitment to increase the schools budget by £7.1 billion by 2022-23, compared to 2019-20 funding levels. This three-year investment represents the biggest school funding boost in a decade and includes an uplift of £2.2 billion from 2020‑21 to 2021-22
provides the police with the resources they need to tackle crime, with more than £400 million additional funding to continue the recruitment of 20,000 additional police officers by 2023. This funds recruitment of an extra 6,000 officers in 2021-22, on top of £750 million provided at SR19 to recruit the first 6,000 officers and pay for the infrastructure for all 20,000
supports local authorities through increasing core spending power by an estimated 4.5 per cent in cash terms next year, which follows the largest real terms increase in core spending power for a decade at SR19. Local authorities will be able to increase their council tax bills by 2 per cent without needing to hold a referendum, and social care authorities will be able to charge an additional 3 per cent precept to help fund pressures in social care. SR20 also provides £254 million of additional funding to help end rough sleeping – a 60 per cent cash increase compared to SR19.
To match the UK’s ambitions on economic infrastructure, which are set out in the National Infrastructure Strategy, SR20 invests in key infrastructure that supports the UK’s world-class public services, delivering on commitments to build hospitals, schools and prisons.[footnote 13] It provides multi-year funding to build 40 new hospitals, launches a ten-year programme to build 500 schools, and provides more than £4 billion to make significant progress in delivering 18,000 prison places across England and Wales by the mid-2020s.
Ensuring public money is spent well
The government is committed to ensuring that taxpayers’ money is spent well. SR20 ties spending more directly to what the government is aiming to deliver through announcing provisional priority outcomes - and corresponding metrics to monitor these - for each area of spending. It builds on the UK’s well-regarded system for managing public money, and bolsters central oversight and control. SR20 also takes further steps to break down departmental silos and improve join up across government, building on the first round of projects funded through the Shared Outcomes Fund launched at SR19.
The government’s increased investment in infrastructure through SR20 must be matched by faster, smarter delivery. Project Speed, a new taskforce, takes steps to cut down the time it takes to develop, design and deliver vital projects. Projects funded through SR20 will also make increased use of Modern Methods of Construction.
Strengthening the UK’s place in the world
Covid-19 has highlighted the importance of stronger international cooperation and collaboration, and the role of the UK as an international leader in tackling global challenges. UK labs are at the forefront of vaccine research, UK firms are creating technological innovations to help tackle climate change, and the UK will host the UN Climate Change Conference of the Parties (COP26) in Glasgow next year.
SR20 ensures that the government matches the ambitions of a global Britain. It provides the first settlement for the newly-formed Foreign, Commonwealth and Development Office (FCDO), bringing together the UK’s development and diplomatic expertise into one department. This will help to maximise the UK’s influence as a force for good and maintain the UK’s position as a global leader in international development.
The UK will spend the equivalent of 0.5 per cent of gross national income (GNI) as overseas aid in 2021. SR20 therefore provides £10 billion of ODA in 2021-22. This settlement will ensure that the UK remains one of the largest ODA spenders in the world and well above the OECD average.[footnote 14] At a time of emergency, sticking to 0.7 per cent is not an appropriate prioritisation of resources. The government intends to return to the 0.7 per cent target when the fiscal situation allows.
The UK is the world’s largest donor to the COVAX Advance Market Commitment,[footnote 15] an international mechanism to support equitable access for developing countries to Covid-19 vaccines, as well as the largest donor to the World Bank’s lending arm for the poorest countries. The UK was also the first country to commit new financing to the IMF’s Catastrophe Containment and Relief Trust[footnote 16] and is the second-largest Member State contributor to the World Health Organisation.[footnote 17]
To cement the UK’s future as a scientific superpower and drive economic growth, the government is providing almost £15 billion for R&D next year. This will boost the UK’s world‑class research base and increase the productivity and international competitiveness of its innovative firms. This will also reinforce UK international leadership by harnessing innovation with international partners to address the greatest global challenges, from Covid-19 to climate change.
Defence is a central pillar of the government’s ambitions to safeguard the UK’s interests and values, strengthen its global influence, and work with allies to defend free and open societies. SR20 provides Defence with additional funding of over £24 billion in cash terms over four years, including £6.6 billion of R&D, to maintain a cutting-edge military. This settlement means that the Defence budget will grow at an average of 1.8 per cent per year in real terms from 2019-20 to 2024-25. This reaffirms the UK’s commitment to its allies, making the UK the largest European spender on defence in NATO and the second largest in the Alliance.
SR20 provides the UK Intelligence Community with a £173 million funding increase in 2021-22, representing a 5.4 per cent average annual real-terms increase since 2019-20. It also includes over £1.3 billion of capital investment from 2021-22 to 2024-25.
Rebuilding Britain's Economy
Spending Review 2020 (SR20) represents the next step in the government’s fiscal response to Covid-19. It provides significant support for the government’s priority to control and mitigate the virus by funding significant increases in testing capacity and making provisions for the rapid, mass deployment of a successful vaccine. This will allow the government to loosen economic restrictions whilst continuing to protect lives. Responding to the increase in unemployment, SR20 provides additional funding to build on the commitments of the government’s Plan for Jobs, taking further steps to provide unprecedented support to help unemployed people find a job.
More details of the spending review can be found on the government website here.
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