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Spending review aims to steer the UK out of "economic emergency"

25 November 2020

Chancellor of the exchequer Rishi Sunak has set out his plans in a Spending Review that aims to "protect lives and livelihoods" as the pandemic continues to take its toll.

The chancellor told MPs that the UK faces an "economic emergency" and that unemployment levels are predicted to reach 2.6 million in the second quarter of 2021.

He said that by the end of 2020, the UK government will have spent £280 billion "to get our country through coronavirus" taking UK borrowing to record levels. He is allocating another £55 billion to tackle the virus next year.

A key part of the Spending Review was a commitment to spend £100 billion on infrastructure next year in a strategy designed to rebuild the UK economy - which is set to shrink by 11.23% this year because of the pandemic.

The chancellor announced a 2.2% increase in the National Living Wage, to £8.91 an hour, from April 2021; this rate will be extended to all those aged 23 and over (previously it applied to those aged 25 and over). The minimum wage will also rise by 2.2%.

For businesses, the business rates multiplier will be frozen in 2021-22, saving businesses in England £575 million over the next five years.

The government will increase day-to-day departmental spending in the public sector by £14.8 billion in cash terms next year compared to 2020/21. Other key announcements included a pay rise for NHS workers; however, pay rises will be paused for other public sector workers (aside from those earning less than £24,000 a year who will receive a £250 pay rise).

Chancellor Rishi Sunak said: "Our health emergency is not yet over, and the economic emergency has only just begun; so our immediate priority is to protect people's lives and livelihoods.

"But today's Spending Review also delivers stronger public services - paying for new hospitals, better schools and safer streets. And it delivers a once-in-a-generation investment in infrastructure. Creating jobs, growing the economy and increasing pride in the places people call home."

Some of the key announcements are:

COVID-19 support: An additional £38 billion for public services to continue to fight the pandemic this year, and a further £55 billion to respond to COVID-19 in 2021.

Public services: A £6.3 billion cash increase in NHS spending in 2021-22, compared to 2020-21; this is in addition to £3 billion of investment to support NHS recovery. A £2.2 billion uplift for the core schools' budget in 2021-22 compared to 2020-21 funding.

Local authorities: Increasing core spending power for local authorities by 4.5% per cent in cash terms, along with over £3 billion of additional COVID-19 support and an extra £254 million to tackle homelessness and rough sleeping.

Jobs: An additional £3.6 billion to build on commitments made in the Plan for Jobs, including the new 3-year £2.9 billion Restart scheme to help more than one million unemployed people find work.

Infrastructure: £100 billion of capital expenditure next year, with funding for school and hospital rebuilding, housing and transport schemes as well as new investment in cutting-edge research and clean energy sources. A new UK infrastructure bank - headquartered in the north of England - will work with the private sector to finance major new investment projects.

The British Chambers of Commerce (BCC) has welcomed the focus on investment in infrastructure. Director general Adam Marshall said: "The launch of the National Infrastructure Strategy is an important step in overcoming the longstanding infrastructure deficit. We've spent long enough discussing infrastructure projects - it's now time to focus on delivery."

However, Marshall added: "With an uncertain winter ahead, the government will need to maintain an open mind on providing further support to businesses struggling to survive."

Rain Newton-Smith, chief economist at the CBI, said: "Stark forecasts point to tough times ahead. But through his statement, the chancellor has made some bold Autumn decisions to power a Spring recovery.

"But ambition must be matched by action on the ground. The government's commitment to build, build, build must be delivered now … And there can be no let-up in the support for firms facing new COVID restrictions. Firms need help to survive, then thrive."

Written by Rachel Miller.

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