UK Government lays out 2020/21 spending review

Spending Review
The government's spending review outlined a number of new cuts and commitments for the year ahead. Source: HM Treasury (via Flickr)
Chancellor Rishi Sunak has announced the UK government’s 2020 spending plan, including a myriad of cuts and commitments.

By Hallum Cowell | Deputy Editor

Sunak set the tone clearly that the UK economy is in dire straits, mainly due to the COVID-19 pandemic saying that the “economic emergency” has “only just begun”. What followed were a series of announcements and pledges as to how the government’s budget would be spent.

Spending reviews are normally carried out every three years by the government, with each review laying out the government’s economic plans until the next review. However, in the wake of COVID-19 this review is looking at only one year. Therefore, we can expect the next government spending review in late 2021.

UK borrowing is expected to reach its highest level of any government during peacetime at £394 billion, 19% of gross domestic product (GDP) with the national economy projected to shrink by 11.3% by the end of 2020. Sunak called this dramatic economic downturn the “largest fall in output for more than 300 years”.

The government has plans to reduce the level of debt in the coming years and projects that the economy will grow by 5.5% in 2021 and 6.6% in 2022, meaning that the losses seen this year will be negated by the fourth economic quarter of 2022. However, another wave of Coronavirus and potential economic turbulence from the end of the Brexit transition period could make those figures much grimmer.

The Guardian has reported that they have seen a cabinet office briefing which warns of “systematic economic crisis” in the UK following COVID-19 and Brexit.

Unemployment is also a key area of worry for the UK economy after lockdowns hit areas such as hospitality and leisure, leading to a sharp increase in those out of work. Figures show that 1.62 million people are currently out of work, an increase of over 300,000 since 2019. Unemployment is expected to rise to 2.6 million, 7.5% of the working population, by mid-2021.

Announcements surrounding the public sector (people in the public sector work for the government whereas those in the private sector work for private businesses) were also hotly anticipated. The government has decided to freeze the pay of many public sector workers for 2021/22. Those in the public sector who earn less than £24,000 a year in the NHS however (which equates to around a million workers) will see a pay increase.

The living wage is also set to rise by 2.2% to £8.91 an hour with 23- and 24-year olds now qualifying for living wage.

Within the spending review were two key changes to the UK’s international spending. £24 billion will be added to the defence budget, the largest increase in 40 years, while international aid spending will be dropped from 0.7% of total national income to 0.5%, a cut of roughly £4 billion. The government have said that the international aid budget will revert to 0.7% in 2022/23 if the UK’s economic situation has improved.

Devolved regions have also seen an increase in spending, with “cash boosts” for the three devolved governments including £600 million for Wales. Additionally, a £2.6 billion fund for devolved governments to handle COVID-19 has been established.

Following the Chancellor’s announcement in the Commons other MPs were able to comment on the commitments and cuts made by the government.

Labour’s Shadow Chancellor Anneliese Dodds had a number of criticisms for the bill. She said that a long-term spending plan was needed soon, saying that it was needed “to build a future for our country”. Dodds also criticised Sunak for not mentioning Brexit in his speech in the Commons saying that “There’s still no trade deal. So does the chancellor truly believe that his government is prepared and that he’s done enough to help those businesses that will be heavily affected?

Dave Prentis, the general secretary of the union Unison, commented on the pay freeze for public sector workers calling it a “bitter pill” and that this announcement was “austerity, plain and simple”. Prentis also added that, “A decade of spending cuts left public services exposed when COVID-19 came calling. The government is making the same disastrous mistake again.

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