Chancellor Rishi Sunak has announced his Spending Review, setting out how the Government plans to manage the economic crisis caused by the coronavirus pandemic. Here, Andrew Diver, head of taxation at Beatons, explains what was in the review, what was missing and what could happen in the future.
Top of the agenda was of course COVID-19 and the efforts to curb the spread of the virus.
Mr Sunak announced an additional £38billion for public services this year to help fight the coronavirus, as well as a further £55bn next year. This will include £2.6bn for the devolved administrations.
Employment was next up, and with it a stark reminder that 2021 will be another hard year.
Mr Sunak told MPs that the unemployment rate was expected to rise to a peak of 7.5% by the second quarter of 2021 – or 2.6 million people.
To help tackle this, the Chancellor pledged £2.9bn for a new three-year Restart scheme, which looks get more than one million people back in work.
Mr Sunak told MPs the UK’s economy was set to contract by 11.3% this year but would grow by 5.5% in 2021 and 6.6% the year after.
A £6.3bn increase next year in NHS spending was also announced as well as an additional £3bn to support NHS recovery.
There will be a £2.2bn rise in the schools’ budget, an additional £400million to recruit new police officers, an extra £254m of funding to tackle homelessness and rough sleeping and an increase in spending power of local authorities by an estimated 4.5%.
The Government’s vision for a green economy was also given a boost, with a £126bn investment to reach net zero by 2050.
To help people with their finances, Mr Sunak announced an increase in the National Living Wage, by 2.2% to £8.91 an hour from April 2021.
However, this may have the adverse effect of making more businesses wary of rehiring people, especially in areas such as hospitality, which has been among the hardest hit by this year’s economic downturn.
There are notable absences from this year’s spending review, including the state pension triple lock and a no-deal Brexit, which alone could have more adverse effects than the 11% fall in GDP.
In his speech, the Chancellor showed that we are spending a lot of money and have a pile of mounting debt that needs to be addressed.
The spending review points towards future increases in taxes in the spring, with capital gains tax and other tax rises likely.
The state of the UK’s economy will put pressure on the Chancellor to balance the need for tax revenues against the risks of slowing the rate of economic regrowth.
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