The Chancellor of the Exchequer, Rishi Sunak, presented his 2020 Spending Review to parliament on 25th November.
The review comes as the battle against Coronavirus rages on and the economic implications of the pandemic are becoming painfully clear. “Our economic emergency has only just begun,” the chancellor said during his opening statement, saying he will prioritise jobs, businesses and public services.
Here’s a breakdown of the key points you need to know, where the money is being spent, who’s getting a pay rise, and why you really should care about the cut in foreign aid…
The government is spending £280 billion ‘to get our country through Coronavirus’
£18 billion has been allocated to testing, PPE and vaccines next year, £3 billion for the NHS, over £2 billion to keep transport arteries open, more than £3 billion to local authorities and £250 million to help end rough sleeping.
Public service funding to tackle Coronavirus next year will be £55 billion.
A rise in unemployment and a pay increase for some public sector workers
Unemployment is expected to peak with a rise to 2.6 million people estimated to be out of work in the second quarter of next year. This means an unemployment rate of 7.5%.
Sunak outlined the government’s £2.9 billion spend on a Restart Scheme for employment, helping a million people who have been unemployed for over a year to find jobs.
He also confirmed that doctors and nurses in the NHS will be receiving a pay rise, while pay rises in the rest of the public sector will be paused.
But any public sector workers earning less than the median wage – £24,000 – will get a pay rise of at least £250. This means most public sector workers will be getting a pay rise, he says, as it is accepted to apply to over 2.1 million public sector workers.
UK spending on overseas aid will be cut
The UK’s foreign aid budget is to be cut from 0.7% of gross national income to 0.5%, “slicing more than £4bn from the annual package and breaking a Tory manifesto commitment made only a year ago,” as reported by the Guardian.
For context, around a third of our aid budget was spent via organisations such as the UN in 2016, while the rest is sent directly to developing countries.
According to concern.org.uk, the top five countries receiving UK aid in 2018 were Pakistan, Nigeria, Ethiopia, Syria and Afghanistan. The aim of UK aid is to reach people living in some of the poorest, most war-torn and unstable parts of the world.
Overseas aid saves lives, which is why the cut has largely been met with outrage. The Archbishop of Canterbury called it ‘shameful and wrong’.
Even Tory MPs have criticised the chancellor’s decision, which goes back on a previous party manifesto promise. Ex-Foreign Secretary Jeremy Hunt said: “To cut our aid budget by a third in a year when millions more will fall into extreme poverty will make not just them poorer but us poorer in the eyes of the world.”
However, cutting our foreign aid budget has been supported by more extreme right-wing voices. Nigel Farage, former Ukip leader and now-leader of the Brexit party, welcomed the news.
The national living wage to rise to £8.91 an hour
The chancellor also announced a slight increase to the national living wage, as well as an extension to the age bracket to which it applies.
Currently at 8.72 an hour, the national living wage will rise by 19p to £8.91 – an increase of 2.2% – from April next year.
It will also apply to those aged 23 and 24. It currently only applies to those aged 25 and above. The boost will, according to the government, be worth £345 a year for a full-time worker.
Young people and apprentices will also see increases in the National Minimum Wage rates on 1st April 2021.
Borrowing will rise to its highest level in peacetime history
The government will borrow £394 billion (19% rise of GDP) this year to pay for the massive economic dents from the pandemic. That means the budget deficit soars to its highest since World War II.
Borrowing will remain above £100 billion a year for the rest of this parliament, says Sunak.
The UK’s economy will shrink by over 11% this year
The Office for Budget Responsibility (OBR) says that the UK’s economy will contract by 11.3% this year as a result of Coronavirus.
Sunak says economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022, though it is expected to grow by 5.5% next year, then 6.6% in 2022, then 2.3% in 2023, then 1.7% and then 1.8%.
Despite this growth, economic ‘scarring’ means that in 2025, output in 2025 will be 3% lower than the OBR’s forecasts predicted in March.
The OBR were quick to make clear that economic outlook is still ‘highly uncertain’ and depends on various factors such as vaccine roll-out and the outcome of Brexit negotiations.
There will be a boost in departmental spending
Day-to-day departmental spending will rise in 2020-2021 by 3.8% in real terms, the fastest growth in 15 years. Sunak says this looks like…
- £6.6 billion rise for core health budget. The chancellor says this will hire 50,000 more nurses and allow for 50 million more GP appointments.
- £2.3 billion rise in capital investments in the NHS. This will replace old MRI and CT scanners, plus fund a promised hospital building programme.
- £2.2 billion increase to schools budget, a £291 million boost for further education, £1.5 billion to rebuild colleges and £375 million to deliver the PM’s lifetime skills guarantee.
- £400 million to recruit 6,000 new police officers and £4 billion over four years for 18,000 new prison places.