The spending review by the chancellor is not to be confused with the budget. It details the government spending, which normally sets out plans for 2-3 years but due to the pandemic will only look at 12 months in advance.
What were the main points taken from the review?
Government borrowing is set to be £394bn this year, this will be the highest recorded level of borrowing in peacetime history. These figures are not surprising, with the level of funding towards COVID-19, so far around £280bn, the rise was to be expected.
Forecasts are predicting this will be the biggest economic decline in 300 years, with the UK economy set to shrink by 11.3% this year. Again, the figures are not surprising with two lockdowns this year, businesses having to close and with unemployment set to rise, the economy has taken a substantial blow. With the hope of a vaccine by early spring predictions are the economy will grow by 5.5% next year and 6.6% in 2022. Mr Sunak announced he ‘hopes to return to pre-crisis levels by the fourth quarter of 2022’*
Due to the impact of the virus the UK unemployment rate is set to rise to 7.5%, its highest level since the financial crisis in 2009. The Office for Budget Responsibility expects the number of unemployed people to be around £2.6 million by the middle of next year.
There will be pay freezes on all public sector workers apart from over a million nurses, doctors and others that work for the NHS. Along with the pay rises for NHS staff an extra £3bn has been pledge towards NHS England next year to help with the back log due to COVID-19.
This was 0.7% of national income to help overseas, this will be reduced to 0.5% to help deal with the coronavirus crisis at home. Mr Sunak said ‘the new 0.5% target (which added up to about £4bn in savings) will be temporary.
The OBR said, ‘the coronavirus pandemic has delivered the largest peacetime shock to the global economy on record’*. Mr Sunak now must find billions to help repay the debt suffered due to the pandemic, this could lead to further spending cuts or tax rises in the future. It will be interesting to see what happens in April when the budget is announced. It is worth noting that the tax treatment will of course depend on the circumstances of the individual and may be subject to further change in the future.
Unfortunately, there are also going to have to be cuts made with the spending review, but for now there is hope that if a vaccine becomes available in the second half of 2021 this will have a positive impact on the economy.
*Taken from https://www.bbc.co.uk/news/uk-politics-55072003 accessed 26th November 2020