What’s the recovery position?

By Martin Ford | 27 July 2020

As the year dawned, with election promises of ‘levelling up’ and neglected regions of the UK fresh in the memory and seemingly freed from the logjam of Brexit uncertainty, the impending 2020 Spending Review represented an opportunity to kick-start the Johnson Government.

One global pandemic (and one change of chancellor) later, the belated launch of the review came with sombre warnings of ‘tough choices’ from Rishi Sunak.

Departments have been asked to ‘identify opportunities to reprioritise and deliver savings’, and while real-term growth in departmental spending is promised across the period, which runs to 2023/24, no spending envelope has been fixed due to ‘unprecedented uncertainty’.

Nevertheless, the Local Government Association was quick out of the blocks in delivering its shopping list, appealing for funds and freedoms to deliver a green recovery, address skills gaps and rebuild local economies.

LGA chairman Cllr James Jamieson said: ‘Securing the long-term sustainability of local services must be the top priority.

‘It also needs to place emphasis on communities and place by properly enshrining long term, locally-led investment in the economy and infrastructure.’

It chimes with some of the priorities set out by the Government, including post-COVID-19 jobs and skills, a commitment to the levelling up of the country, and making the UK a ‘scientific superpower’ encompassing new green technology.

Mr Sunak said: ‘The Comprehensive Spending Review is our opportunity to deliver on the third phase of our recovery plan – where we will honour the commitments made in the March Budget to rebuild, level up and invest in people and places -  spreading opportunities more evenly across the nation.’

But the Treasury faces an unenviable task to deliver in the wake of a global pandemic that has laid waste to Government finances.

Borrowing reached a record £128bn between April and June, compared to £104bn during the same period in 2019, taking overall Government to an all-time high of almost £2 trillion.

Chief executive of the Resolution Foundation think tank, Torsten Bell, said the chancellor’s language indicated he was ‘rowing back’ on public spending increases promised weeks before the COVID-19 crisis forced a nationwide lockdown.

‘The planned 2.8% real terms growth a year has now become a far vaguer promise of some growth in real terms,’ he added.

‘This could mean very tough times for some public services in the years ahead.’

The headroom available to Mr Sunak is also constrained by some big spending promises already made by the Government.

Between £130bn and £150bn every year has been committed to the NHS, and schools will receive up to £52bn annually.

Defence spending will remain at 2% of GDP and the overseas aid budget will continue to be 0.7% of national income.

And far from enjoying a ‘Brexit dividend’, the Institute for Fiscal Studies (IFS) has calculated much of the money previously paid to the European Union will be required to replace that spent by the EU in the UK or on its behalf.

Research economist at the IFS, Ben Zaranko, said: ‘The Chancellor has opened the door to a less generous funding settlement for public services than the one he committed to in March.

‘Given the large amounts already promised for priority areas like the NHS, schools and police, and Rishi Sunak’s emphasis on the need for "tough choices", another round of budget cuts for other, lower-priority departments is a very real possibility.’

The chancellor may choose other avenues than a slash-and-burn approach to help balance the books, however.

The Prime Minister has promised not to return to the years of austerity seen under George Osborne’s tenure at Number 11, signalling that increasing income may be preferring to cutting expenditure.

Such an approach seems to more politically palatable, with polling suggesting the public may have more appetite for increased taxation rather than service cuts.

A recent YouGov poll on reducing the deficit found 27% of people were in favour of cuts compared to 47% in favour of tax rises on tax.

Calls for an overhaul of the tax system – including council tax – may also offer an avenue for Mr Sunak to avoid budget slashing in the longer term, though its impact may not be fully felt during the period covered by the Spending Review.

Despite following hot on the heels of pay increases of up to 3.1% for some public sectors workers, such as doctors, police and teachers, the chancellor directed departments to ‘exercise restraint in future public sector pay awards’ – to the dismay of unions.

Unison general secretary Dave Prentis said: ‘The fanfare announcement of more pay for some public service workers was clearly just a smoke screen for something altogether more sinister.

‘Talking of holding down pay for all the NHS workers – including nurses, paramedics, cleaners, porters and healthcare assistants – and the care, school and council staff who’ve all given so much in the past few months will go down like a lead balloon with the public.’

Labour’s shadow chancellor Anneliese Dodds has also pressed for the chancellor’s directive to departments to be published in full.

‘The language in the chancellor’s announcement on the comprehensive spending review suggests he might be giving with one hand only to take away with the other,’ she said.

‘This is not the time to fall back on policies that delivered the slowest economic recovery in eight generations. And it’s not the time for the government to keep the public in the dark about its fiscal plans.’

The Government is yet to announce a date for the conclusion of the review, but it will be eagerly awaited by the local government sector not only for the contents of the Spending Review itself, but for the policy announcements dependent upon it.

The proposed structure of the UK Shared Prosperity Fund and guarantees over lost council tax and business rates are just two pressing issues for councils that have been pushed back beyond the conclusion of the review. It promises to be a very busy autumn indeed.

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