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Rishi Sunak speech: What to expect from the spending review

·Finance and policy reporter
·7-min read
Chancellor Rishi Sunak prepares for the UK government's spending review announcement on Wednesday. Photo: HM Treasury / Simon Walker.
Chancellor Rishi Sunak prepares for the UK government's spending review announcement on Wednesday. Photo: HM Treasury / Simon Walker.

The UK chancellor Rishi Sunak is preparing for another major announcement on public spending and the state of the UK economy today (Wednesday).

The spending review marks the latest in a string of high-profile speeches by the chancellor, who only took office in February just as the coronavirus hit. He has repeatedly expanded and extended crisis lifelines as infection levels and restrictions have hobbled the economy, including the furlough and job support schemes, self-employment grants and business loans.

But his upcoming speech is not expected to touch on such economic support measures, instead focusing mainly on public services budgets from the NHS to the police. Here is everything you need to know:

What is the 2020 spending review?

The spending review sets out how much the government will allocate to different departments and services.

Such reviews typically come after months of negotiations between the Treasury and departments lobbying for resources, and typically cover several years of spending. The new review will only cover the next year however, “to prioritise the response to COVID-19,” according to the Treasury.

READ MORE: 5.5 million public sector workers ‘face pay freeze’

New economic forecasts will also be published by the independent Office for Budget Responsibility (OBR) alongside the review.

The chancellor is unlikely to set out tax plans and how measures will be funded, as in a typical budget. But the speech may include clues about “how long the fiscal taps will stay open, and the first signs of how quickly and where taxes will be raised or public spending cut,” according to Deutsche Bank analysts.

When is Rishi Sunak’s speech, and where is it broadcast?

Sunak will set out the key points of the Spending Review in a statement in the House of Commons on Wednesday.

The chancellor is expected to speak at around 12.30pm after prime ministers’ questions (PMQs), and can be watched on parliament’s live stream online.

More details of spending plans may be published by the Treasury shortly afterwards.

What extra spending is planned?

The chancellor has promised “quite a significant” increase in spending on day-to-day services. Expect some new high-profile announcements, but some plans have been briefed in advance.

NHS services will receive £3bn ($4bn) extra funding to deal with the crisis, including £1bn for backlogs of checks, scans, and operations for other health issues and “hundreds of millions” for mental health services.

£2.9bn ($3.86bn) will be allocated to a “Restart” plan to help more than 1 million job-hunters find work, with another £1.4bn in extra cash to boost Jobcentre capacity. £1.6bn more will be ploughed into “Kickstart,” government-subsidised youth employment placements.

READ MORE: Rishi Sunak pledges £2.9bn to help unemployed find work

The Treasury said Sunak would also announce “tens of billions” in infrastructure spending, including new roads, homes, railways and cycle lanes as well as hospital, education and prison investment. The move will “support and create hundreds of thousands of jobs across the country,” it said in a press release. The Conservatives promised £100bn of additional infrastructure spending in their 2019 manifesto.

Meanwhile an extra £151m has been earmarked for helping rough sleepers off the streets, £275m for the courts to deal with huge COVID-19 backlogs and tens of millions will fund a new counter-terrorism HQ.

Sunak is expected to also reaffirm previous government pledges, including hiring 50,000 new nurses and 20,000 police officers, providing 50m more GP appointments.

WATCH: Chancellor says ‘no return to austerity’

What spending cuts are likely?

The chancellor has said the public “will not see austerity” this week, but he is widely expected to confirm a controversial pay freeze for millions of public sector staff.

It could leave police officers, teachers and others with no extra cash or rises only in line with inflation, sparking a fierce backlash already from trade unions. The NHS may be exempt. The Centre for Policy Studies estimates it will save £15.3bn.

There is also speculation of at least a temporary cut to Britain’s foreign aid budget, with ministers potentially triggering a crisis clause to cut a longstanding pledge to spend 0.7% of GDP to 0.5%.

What will forecasts say on the economy and jobs?

The OBR is expected to echo Bank of England analysis in predicting the biggest collapse in economic output this year in three centuries.

While the UK economy did better and unemployment was lower than assumed by the OBR between July and September, its previous main forecast did not factor in a second wave of the pandemic, lockdowns and furlough subsidies.

It is expected by the Resolution Foundation to predict GDP will be 11% smaller in 2020 than before the crisis.

READ MORE: Shops to reopen in England but pubs face stricter rules

But the think tank also expects the economic hit to leave longer-term scars on firms and workers, with a “persistently smaller economy, producing lower tax revenues.”

It predicts the OBR will forecast economic output over the next five years will be around £700bn lower than expected in March.

The economy in 2024-25 is also expected to be 3% smaller even than its subsequent downgraded July forecast, the equivalent of £1,000 for every adult in Britain.

“Economists will take great interest in the OBR's medium-term forecasts for GDP and its view on the amount of "scarring" caused by COVID-19,” wrote Samuel Tombs, chief UK economist at Pantheon Macroeconomics in a recent note.

What will forecasts say on government borrowing?

Sunak’s spending commitments in recent months, from extending crisis income subsidies and hospitality VAT cuts to NHS and vaccine funding, are likely to push up the OBR’s forecasts for government borrowing this year.

Pantheon Macroeconomics expects the OBR to raise its forecasts for 2020 borrowing to around £380bn, almost a fifth of the value of Britain’s entire economic output, and for borrowing in the first quarter of next year.

Longer term, day-to-day departmental spending is expected by the Resolution Foundation to rise by as much as £80bn between 2020 and 2022. The calculation assumes spending hikes proposed in March are delivered and some COVID-19 costs persist even as the economy re-opens, from vaccine rollout to extra funding for public transport and supporting jobseekers.

READ MORE: UK economy may not full recover ‘until 2023’

A combination of this higher spending and a permanently weaker economy will push total government spending to levels “only ever previously observed in wartime” at around 60% of GDP,” according to the think tank.

While borrowing is currently cheap and few experts advocate tax hikes until the crisis eases, the foundation warns in its latest report: “The tension between a reluctance to increase taxes, the commitments made on spending increases, and the desire to keep a lid on the rise in public debt cannot be avoided forever.”

What pressure is Sunak facing for spending hikes?

Sunak may face calls to cut the aid budget from Conservative MPs, but mainly faces a chorus of demands for higher spending.

The Trades Union Congress (TUC) is campaigning for a “proper pay rise” for public sector staff, and a reversal of plans to cut funding for worker training via their unions.

The Local Government Association warns English councils face a £4bn black hole next year just to meet current commitments as demand pressures grow, after a decade of steep budget cuts. Even some Conservative leaders have spoken out.

The Joseph Rowntree Foundation is echoing the Resolution Foundation’s calls for a planned £1,000 cut to benefits next March to be scrapped. The latter has also proposed a “COVID reserve” pot to prevent departments cutting into existing budgets for crisis measures.

Meanwhile the Chartered Institute of Management Accountants wants employers to have to invest in skills and professional development to receive job support subsidies, as well as vouchers to help small firms move online.

WATCH: How can Rishi Sunak plug the hole in the public finances?