What to Expect in Rishi Sunak’s Crucial U.K. Spending Review
(Bloomberg) -- On Wednesday, Chancellor of the Exchequer Rishi Sunak will outline tens of billions of pounds of expenditure, ranging from fixing potholes to buying warships.
The spending review will mostly cover departmental budgets for the fiscal year starting in April, but there will also be longer-term programs in defense, health-care, education and infrastructure.
Here’s a rundown of what we know so far:
What is a spending review?
Spending reviews are held infrequently, and can cover periods of between one and five years.
They cover day-to-day spending on wages and administration, as well as infrastructure investment in things like roads, schools and hospitals. Decisions made cover about 50% of total government outlays. Not covered are items that are harder to predict, such as welfare payments, pensions and debt interest.
What about taxes?
Unlike budgets, spending reviews aren’t used to set or alter taxes. But given the dire state of the public finances – the national debt now exceeds 100% of gross domestic product of the first time since the 1960s -- Sunak may hint at how he aims eventually to rein in the deficit.
What will we learn about the economy?
The Office for Budget Responsibility will publish forecasts revealing what Sunak on Sunday described as “the enormous strain and stress” on the economy. They’re expected to show GDP shrinking around 11% this year -- the most in over 300 years -- and the budget deficit approaching 400 billion pounds ($534 billion), a peacetime record.
What’s the priority?
Fighting the pandemic remains the priority. That includes boosting the test and trace program with an additional 7 billion pounds announced on Monday, and 3 billion pounds of new funding for the National Health Service to help it deal with the pressures caused by the virus, including a backlog of routine surgeries, scans and cancer treatment.
With three vaccine candidates showing positive results, a mass national rollout will need funding. And then there are vast programs to support businesses and workers with grants, loans and wage payments through the restrictions.
Will the U.K. return to austerity?
The past decade was dominated by the austerity policy devised by former Prime Minister David Cameron and his chancellor, George Osborne, who cut back spending in unprotected government departments and froze or capped wages for public-sector workers. Sunak and Prime Minister Boris Johnson have promised there won’t be a return.
“What you will see is an increase in the government spending on day-to-day public services,” Sunak told Sky News on Sunday, describing it as “significant.” He promised most departments will have their budgets “rolled over.”
But Sunak, Johnson and Foreign Secretary Dominic Raab have all refused to deny reports they’re planning to cut spending on overseas aid to 0.5% of gross national income from 0.7%. That prospect has created disquiet on the Conservative Party backbenchers, with several former ministers saying it will diminish the U.K.’s international reputation and influence.
What will happen to public sector pay?
According to people familiar with the matter, Sunak is considering restraining public sector pay, which now costs over 200 billion pounds a year. That could involve either a freeze or capping raises. The measure would exempt health care workers.
The chancellor’s thinking is informed by statistics showing public sector workers earned on average 7% more than those in the private sector in 2019, after including pensions and adjusting for skill levels and job characteristics. They have also fared better during the pandemic, which has cost hundreds of thousands of private-sector jobs and furloughed millions on reduced incomes.
But pay restraint will be a blow to millions of police, teachers and public servants, whose wages were subject to Osborne’s measures. It’ll also be galling if Members of Parliament get a pay rise of more than 3,300 pounds under the formula proposed in October by the Independent Parliamentary Standards Authority. The chancellor has no control over MPs’ pay.
Will there be longer-term decisions?
Because of the uncertainty, Sunak cut the review to one year from three, But he’s promised to fund multi-year plans for the NHS and schools, and also priority infrastructure projects such as high-speed rail. Last week, the government announced 24.1 billion pounds of new defense spending over four years.
What about infrastructure?
The Tories promised 100 billion pounds of infrastructure investment in their 2019 election manifesto, and a national infrastructure strategy will be published alongside the spending review. The Treasury pledges to commit “massive” funding for programs including fiber broadband, flood defenses and transport.
On Friday, the Treasury announced a new national infrastructure bank to be headquartered in northern England. It also unveiled rule changes to make it easier to approve infrastructure projects in poorer regions, as well as 220 million pounds of funding for left-behind towns and 1.6 billion pounds to fix potholes and tackle traffic congestion.
And the government’s Green Agenda?
Last week, Johnson announced a 10-point plan to drive carbon emissions down to “net zero” by 2050. The 12 billion-pound plan included about 4 billion pounds of new promises. There was 500 million pounds to help develop hydrogen as a fuel, 200 million pounds for carbon capture and storage, and 525 million pounds for nuclear power.
To drive down transport emissions, the government promised 1.3 billion pounds to roll out charging points for electric vehicles, 582 million pounds in grants for those buying zero or ultra-low emissions vehicles. There was also a billion pounds to help make buildings more energy-efficient.
Other additional cash promised in the past week include:
- 4.3 billion pounds of new funding to help the unemployed back into work
- 2.2 billion pounds for schools in the next year
- 1.5 billion pounds for further education colleges
- 3.7 billion pounds for hospitals
- 4 billion pounds for prisons
- 220 million pounds for the borders and immigration system
- More funding to meet recruitment targets for police (20,000 by 2023) and nurses (50,000)
- “Tens of millions” of pounds for a new Counter Terrorism Operations Centre
- 275 million pounds to fund the criminal justice system, including addressing courts backlogs
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