Spending Review 2020 focuses on ‘building back better’ and recovery from coronavirus (COVID-19)

Spending Review 2020 focuses on ‘building back better’ and recovery from coronavirus (COVID-19)

The Chancellor, Rishi Sunak, has announced the spending allocations for the public sector in the Spending Review, which took place on 25 November 2020. Recovery from the coronavirus (COVID-19) pandemic, investment in the NHS, education and police, improvement of infrastructure and public sector pay were the key areas addressed by the Chancellor. He has allocated £55bn to the fight against coronavirus, introduced a three-year £2.9bn restart scheme which aims to help over one million unemployed people find jobs, and increased the national living wage for those aged 23 and over to £8.91 per hour from April 2021. In addition, £100bn has been assigned for capital spending, a £7.1bn National Home Building Fund has been announced, and £12bn has been provided to ensure the UK reaches net zero by 2050. Sally Shorthose, partner at Bird & Bird, shares her views on the Chancellor’s announcements.

Coronavirus

In order to tackle the coronavirus crisis, which the Chancellor states was his ‘immediate priority’, the government is providing £55bn in total for 2021–22. £18bn has been allocated to fund preventative coronavirus measures, £6bn on which will be used for the development and purchase of vaccines, while £3bn is provided to support the recovery of the NHS and £2.6bn will be given to the devolved administrations. Education will benefit from a fund totalling £1.4bn to help students catch up on lost learning and to support free school meals, while the justice system will receive £246m in 2020–21 to recover from the pandemic by tackling backlogs in Crown and family courts and employment tribunals.

£519m of funding has been confirmed for 2021–22 to support the continued delivery of coronavirus-related loans and the business rated multiplier will be frozen for the upcoming year. The British Business Bank’s Start-Up Loans will also be expanded by £56.5m.

Infrastructure

Sunak has announced that capital spending will amount to £100bn for 2021–22. Out of this sum, £19bn is to be invested in transport, of which £1.7bn is to be used on local road maintenance and upgrades, £4.2bn will be provided to the NHS to refurbish and maintain the infrastructure of hospitals, while further £325m will be invested in diagnostic equipment. £15bn is also to be invested into research and development, in particular clinical research for new drugs, treatments and vaccines. In addition, the government has allocated over £260m to improve mobile connectivity and broadband coverage.

In order to achieve the government’s ‘Green Industrial Revolution’, the sale of petrol and diesel cars and vans will end by 2030 and all vehicles will be required to have a zero emissions capability. To this extent, £1.9bn will be invested in charging infrastructure. To further decarbonise transport, £120m will be spend on zero emission buses and £257m on cycling and walking.

The Spending Review also introduced a National Infrastructure Strategy based on economic recovery, levelling up and meeting UK’s net zero emissions target by 2050. To support these objectives, a UK infrastructure bank will be set up in spring 2021 to fund major infrastructure projects and a £4bn Levelling Up Fund will be launched for England. Furthermore, funding has been increased for the devolved administrations through the Barnett formula, amounting to £2.4bn for Scotland, £1.3bn for Wales and £0.9bn for Northern Ireland.

Housing

In relation to housing, the Chancellor has introduced the National Home Building Fund (NHBF), totalling £7.1bn The NHBF aims to unlock 860,000 new homes over the next four years, and comprises of £4.8bn of capital grant funding for land remediation, infrastructure investment and land assembly, £100m for non-Mayoral Combined Authorities to support home delivery and regeneration in 2021–22, the delivery of the Brownfield Fund for Mayoral Combined Authorities and £2.2bn of new loan finance to support housebuilders.

Further, it has been confirmed that over £12bn will be allocated to the Affordable Homes Programme, £475m to make public buildings greener, £150m to help homes become more energy efficient and £60m to retrofit social housing. The Green Homes Grant voucher scheme has also been extended with a fund of £320m for 2021–22. Additional £30m has been allocated to help deliver the new building safety regime.

Employment and wages

Although over 1 million NHS workers are said to benefit from a pay rise in 2021–22, pay rise for the rest of the public sector will be paused. Other announcements in relation to wages included the increase of the national living wage for workers over the age of 23 by 2.2% to £8.91 per hour and an increase in other national minimum wage rates for those under the age of 23, starting from April 2021.

In addition, the thee-year £2.9bn restart programme to support those who have been unemployed for over a year to find a job has been announced and £1.4bn is to be invested to build upon the Plan for Jobs scheme.

Public services

For 2020–21, total departmental spending has been set at £540bn. Schools are set to receive a funding boost of £2.2bn, the NHS will be allocated an extra £6.3bn and £400m will go toward the recruitment of 20,000 additional police officers by 2023. Defence will benefit from a fund of £24bn over the next four years. Furthermore, in order to help end rough sleeping, the government has provided extra £245m.

Shorthose comments: ‘The Chancellor’s Spending Review announcement was notable, inter alia, by the lack of reference to the impact of Brexit on top of COVID, since the Chairman of the Bank of England stated this week that the impact of Brexit on the economy will be more far reaching and long term than the impact of COVID; it could be added that the discovery of encouraging vaccines would support the view that COVID effect may well dissipate during 2021. Indeed, he said that the WTO scenario, when superimposed onto existing forecast, would delay the point at which output will delay its pre-virus peak by almost a year to Q3 2023, if not a further 2 years delay.

'Other than this omission, notable announcements include a pay freeze for most public sector workers as a means of "evening up" the private sector shortfall, and a spending bonanza, including £100 billion of capital expenditure next year, a levelling up fund, more support for the NHS and a long awaited more than £270 million in 2020-21 to support the recovery of the justice system, including funding to ensure safety in prisons and courts and funding to reduce backlogs in the Crown Court caused by Covid-19. I am sure this latter announcement will be a source of relief to those involved in the criminal legal system, but it remains to be seen if this funding is enough to make a significant dent in the backlog.’

Written by Barbora Kozusnikova

Sources:

• Spending Review 2020

• Spending Review to fight virus, deliver promises and invest in UK’s recovery

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