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Spending review: Sunak navigates choppy waters

Chancellor Rishi Sunak presented a government spending review designed to reverse the UK's biggest economic decline for more than 300 years.

25th Nov 2020
Freelance Journalist
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Sunak defies downbeat economy with spending review promises
Chancellor Rishi Sunak_HM Treasury

With the nation anxious about coronavirus and Brexit-related finances, the House of Commons was in a sombre mood as the Chancellor of the Exchequer read out the Office for Budget Responsibility (OBR) assessment of Covid-19’s impact on the country’s economy: an 11.3% contraction in GDP this year that will leave us 3% poorer in 2025 than expected.

The slump is likely to be accompanied by a rise in unemployment to 2.6m people over the same period.

Yet the downbeat forecast did not appear to inhibit Sunak’s menu for public spending, which included a £2.9bn Restart programme to help Britons who have been out of work for 12 months find jobs. Another £1.4bn was promised for the Jobcentre Plus network, which reversed Tory spending on employment exchanges over the past five years.

Sunak also promised increased departmental spending, with increases of £14.8bn spread across day-to-day on education, the NHS and policing.

To hark back to last year’s election promise to level up the north and south, the Chancellor invoked “once in a generation plans to deliver a once in a generation return for our country” in the shape of £100bn national infrastructure strategy that includes pledges for housing, green initiatives, broadband, 4G and the “biggest ever investment in new roads”.

No mention of tax

Spending reviews aren’t intended to tackle how the government is going to cover its spending commitments, but this Chancellor has surprised us several times already on that score. This time, however, Sunak kept any changes to fiscal policy close to its chest. Any major changes to tax policies or rates will be set aside until his the Budget scheduled for next spring.

Sunak skimmed over how he would fund his spending plans, apart from confirming that the UK’s borrowing will remain high at £394bn this year and easing down to around £100bn after 2023.

Several of his proposals confirmed what had already been leaked to the press during the past week. Some £5bn will be recouped by slashing the UK’s foreign aid budget from 0.7% of GDP to 0.5%, prompting condemnation from former Prime Ministers Tony Blair, Teresa May and  John Majory, who called the decision “morally wrong”.

Meanwhile, the government will freeze pay rises for those working in the public sector (excluding NHS staff), basing the controversial decision on how public sector wages rose by nearly 4% this year, while private sector wages fell by 1%.

Shadow Chancellor Anneliese Dodds responded that the freeze “takes a sledgehammer to consumer confidence” as public service workers will know they have less money they have to spend on the high street.

Missed opportunity

Nimesh  Shah, CEO at leading tax and advisory firm Blick Rothenberg, was thankful there was no mention of changes to taxes. “Businesses will breathe a huge sigh of relief that there was not even a suggestion from the Chancellor that tax increases are imminent after recent heightened speculation,” he said.

But for his colleague, Blick Rothenberg partner Richard Churchill, by not going ahead with an Autumn Budget to outline his plans more clearly the Chancellor “lost the opportunity to amend fiscal policy to encourage entrepreneurship and research and development”.

Anyone for Brexit?

The OBR, concluded in its summary of UK finances that “a ‘no deal’ Brexit could reduce real GDP by a further 2%, due to various temporary disruptions to cross-border trade and the knock-on impacts”.

Yet neither “Europe” nor “Brexit” were mentioned during the Chancellor’s spending review speech, even though the 12-month transition period could end without a trade deal between the UK and EU.

The omission was picked up by Dodds, who asked during her response to the spending review: “Does the Chancellor truly believe that his government is prepared and that he’s done enough to help those businesses that will be heavily affected?”

Replies (5)

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By Justin Bryant
25th Nov 2020 17:27

It's pretty laughable isn't it how Teresa May once said there's no magic money tree or whatever. As a sovereign currency issuer the government can print as much of the stuff as it likes (the difference is that you could not do that 300 years ago of course, so you could not money print your way out of a recession like you can now - the recent price rise of Bitcoin and property etc. shows the market is now quite concerned about inflation).

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By quintodc
26th Nov 2020 10:56

Absolutely right. With a printing press not tied to underlying gold you can print as much monopoly money as you like....until the central banks decide they want it back...(the printing is carried out by central banks at an interest rate to the government - a system designed for national poverty and slavery to state / banking system) ....complete economic crash and global reset...that's the overall direction and intended target. We are controlled by foreign entities., not a legitimate democratic national government.

Wake up people. If you want to spend more in your business or make a business investment you have to draw up a business plan to show a measured risk of likely future income stream. No such business plan is possible with "UK plc" as it is already too heavily in debt to the central banking system. Remember, there is always just ONE winner in the game of monopoly and I bet it is the banker this time round as he's always got his fingers in the money pot!

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By johnjenkins
26th Nov 2020 11:14

Have you ever thought that, perhaps, as the whole world has this problem that the national debt in all countries will be wiped out and "reset". This is not a UK problem, it is global, which means, once we all come out of the pandemic (possibly next summer) then no doubt the brains will once again start ticking. As for control :- is it good to have control over nothing? The whole world is too fragile (this pandemic has highlighted this) for too much manipulation. Debt is no good if it can't be repaid.
Anyway we now have Joe telling us that America will be once more in charge of the world so nothing to worry about is there?

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By quintodc
01st Dec 2020 11:10

You're right, its called the New World Order. UK Government are simply puppets to the agenda, its not a UK thing at all. In fact one could argue that a UK Government, protecting its people from a corrupt agenda, no longer exists.

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By johnjenkins
01st Dec 2020 12:13

The world is very small these days. Soon we will all be singing from the same hymn sheet. Capitalism and Communism are a thing of the past. I'm very hopeful that a climate change revolution will play a big part in the NWO. Once we get heads of Governments that put our planet not power first then we will be in for a treat. The shoots are beginning to grow.

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