Spending Review 2020 at a glance

In the absence of a full autumn Budget, the Chancellor has unveiled public spending announcements for the year ahead, prioritising jobs, businesses and public services

£280bn has been committed already in public spending this year, with another £55bn next year, with the highest level of public borrowing in history.

A Spending Review normally covers three years, but current conditions make it wise to only cover one year, until the impact of the coronavirus pandemic can be more clearly understood on government finances.

In fact, this is the third year running that we have had a one-year Spending Review.

The review, which was preceded by the Prime Minister's Winter Plan, did not signal tax rises (particularly on, say, Capital Gains Tax), although this year has certainly seen plenty of change already, as highlighted by four versions of the Winter Economy Plan listed below.

A key theme of the Review was a focus on infrastructure spending, with the establishment of a new infrastructure bank and strategy. This is partly to meet manifesto promises and to "level up" various regions of the country, but also to counter the contraction of the economy.

Some details of what will be included in the next finance bill have also been previously published, including, for example, a one-year extension of the £1m Annual Investment Allowance.

Key Spending Review announcements

Rishi Sunak has outlined the government’s departmental spending plans for the 2020-21 financial year that starts on 1 April 2021.

Previously announced £24bn four-year rise in defence spending, and £3bn extra for the NHS
The UK economy will contract by 11.3% this year, the biggest contraction in 300 years
By 2025 the economy will be 3% smaller than projected in the March 2020 Budget
£2.9bn to help over 1m people who have been unemployed for over a year to find new work
NHS nurses and doctors will get a pay rise
Other public workers will have a pause in pay rises
Minimum wage to rise 2.2% to £8.91 per hour - extended to those aged 23 and over.
The Office for Budget Responsibility (OBR) expects unemployment to rise to 7.5% (2.6m people) in the second quarter of next year
Increased flexibility for local authorities to raise more for healthcare services
An increase in the schools’ budget by £2.2bn. Every pupil will see a year-on-year funding increase of at least 2%.
Funding confirmed for the rebuilding of 500 schools over the next decade
£100bn in infrastructure spending
A new infrastructure strategy
New infrastructure bank to be launched in spring 2021
£14.6bn funding for R&D
New £4bn levelling up fund
Foreign Aid cut to 0.5% in 2021
The business rates multiplier will be frozen for 2021-22
Personal tax allowance, higher rate threshold, NIC thresholds all index linked to September CPI

The Chancellor closed his speech by saying the "true measure of our success" of the spending announced will see "the individual, the family, and the community" become stronger.

Reference material

What the Chancellor did not say

We know there will be a full Budget in March 2021, and the Chancellor is keeping his tax-raising powder dry until then, most notably on such matters as:

Aligning Capital Gains Tax (CGT) rates with income tax and possibly scrapping a major CGT relief.
Scrapping higher-rate tax relief on pension contributions in favour of a flat rate.
An extension of the business rates holiday beyond March 2021.

The Prime Minister has previously ruled out rises in income tax, VAT and national insurance, although in the latter case the Chancellor has indicated a possible rise in national insurance for the self employed at some stage.

We don't know for sure that he will make tax changes, but there is time to take action, where sensible, in advance of announcements next March.

On the non-tax front, the Chancellor was silent on whether this year's temporary £20-per week increase in universal credit will continue beyond next April. There have been calls by various groups for it to be made permanent. It looks likely that an announcement will not be made on this until the March 2021 Budget.

Brexit impact not factored in

Not mentioned once by the Chancellor, though looming large on the horizon is Brexit, but the OBR report assumes that the UK and EU will conclude a free-trade agreement (FTA) and that there will be a smooth transition to a new trading relationship after the transition period ends on 31 December 2020.

The OBR has factored no such short-term disruption into its forecasts for Brexit, as it assumes that an FTA will lower both export and import intensity over time, and that productivity will be 4% lower in the long run than if the UK had remained a member of the EU.

However, the OBR does say that a ‘no deal’ Brexit could reduce real GDP by a further 2% in 2021, due to various temporary disruptions to cross-border trade and the knock-on impacts.

The OBR also cites the Bank of England's concern that around a third of UK firms are either only partially prepared or not prepared at all for Brexit, even if a FTA is agreed.

Previous Winter Plan announcements

Winter Economy Plan 4 (5 November)

An extension of furlough until 31 March 2021.
An improved third grant for the self-employed, but with extra conditions
Job Retention Bonus scrapped

Winter Economy Plan Part 3 - the lockdown sequel (2 November)

An extension of furlough until 2 December, with employees receiving 80% of their pay.
A more generous third grant for the self-employed claimable from 30 November
Extra welfare support for the self-employed until April 2021
Cash grants for businesses which are closed
Business Loan Schemes extended to 31 January 2021
A top up facility for Bounce Back Loans
Extended mortgage and consumer credit payment holidays

Winter Economy Plan Part 2 (22 October)