Policy and Intelligence Newsletter - Chancellor’s Spending Review 2020 Update

This briefing gives an initial overview of the main announcements made on 25 November by the Chancellor Rishi Sunak in his Spending Review 2020.

Growth Forecast

Growth slowed to 1.1% in September. The Office for Budget Responsibility (OBR) expects GDP to shrink by 11.3% in 2020. 2.1% real-terms growth is assumed for the years after 2020-2021. A swift rollout of an effective vaccine could see GDP back at pre-virus levels by the end of 2021. Without a vaccine, GDP is unlikely to return to pre-virus levels until the end of 2024.  

Debt & Borrowing Forecast (% of GDP)

Public sector debt as a share of GDP is likely to rise to 91.9% in 2020-21, rising to 97.5% by 2026. The OBR forecasts that spending on debt interest as a % of GDP falls further this year, despite higher borrowing, due to historically low interest.  

Borrowing is predicted to peak at £393.5bn in 2020-21 (19% of GDP), falling to 3.9% by 2026.

Bank Rate 

The bank rate will be reduced to 0.1%.   

Covid-19

The Government will have spent £113bn to support the public sector’s response to Covid-19 by the end of 2020-21. The public sector will receive a further £38bn to support the Covid-19 response this financial year, and £55bn to respond to Covid-19 in 2021-22, £21bn of which is currently an un-allocated contingency fund.   

The Government has spent or committed £6bn to develop and procure Covid-19 vaccines. Of that total amount, £733m will be allocated to the UK Vaccines Taskforce in 2021-22 to purchase successful vaccines and £128m to research & development and vaccines manufacturing. Further funding will be made available from the Covid-19 reserve if needed.  

£15bn in 2021-22 will provide enhanced Covid-19 testing capacity and £163m will increase supplies of key medicines for treating Covid-19 patients.  

Overall Spending

Core day-to-day spending (not including Covid-19 spending) will grow at an average of 3.8% a year in real terms from 2019-20 to 2021-22. Overall core day-to-day spending, excluding exceptional funding to fight Covid-19, will rise to £384.6bn in 2021-22, the fastest rate in 15 years.  

There will be £100bn of capital investment in 2021-22, a £15bn real-terms increase on 2019-20.    

 Local Authorities and Public Sector 

The Government will provide local authorities with over £3bn to address Covid-19 pressures. This includes £1.55bn to meet additional expenditure pressures as a result of Covid-19; £670m to support the more than 4m households that are least able to afford council tax payments and an estimated £762m to compensate local authorities for 75% of irrecoverable loss of council tax and business rates revenues in 2020-21.

Social care authorities will be able to charge an adult social care precept of up to 3%. 

Full details of the proposed Local Government Departmental Expenditure Limits settlement for 2021-22 will be set out shortly by the Ministry of Housing, Communities and Local Government (MHCLG). Local authorities’ Revenue Support Grant will be increased in line with inflation and core spending power will be increased by an estimated 4.5% in cash terms.

The referendum threshold for increases in council tax will remain at 2% in 2021-22.

£16m will be provided to support modernisation of local authorities’ cyber security systems.

There will be a public-sector pay freeze in 2021-22, apart from NHS staff and low-paid workers. Public sector workers earning less than £24,000 will receive a minimum £250 increase.  

£200m will be committed from 2021-22 to fund a second round of pilots under the Shared Outcomes Fund (SOF). The first round of pilots included drug treatment programs, offender rehabilitation to 5G towers, drone technology and offshore wind provision.

Housing, Planning and Infrastructure

As part of a multi-year capital spend, there will be £20bn of investment underpinning the long-term housing strategy, including £7.1bn for a National Home Building Fund and over £12bn for the Affordable Homes Programme.  

The existing New Homes Bonus scheme will be maintained for a further year with no new legacy payments.

Flood and coastal investment in England will be doubled to £5.2bn over 6 years.  

£100m, in addition to an existing fund of £400m, will be provided in 2020-21 for housing delivery and regeneration, including the development of brownfield sites and regenerating estates.  

£2.2bn of new loan finance will support housebuilders across the country. This includes delivering Help to Build for custom and self-builders, and funding for small to medium enterprises and modern methods of construction.

£12m will advance the Government’s planning reform agenda helping to accelerate housing and infrastructure delivery.

£150m will help some of the poorest homes become more energy efficient and cheaper to heat with low-carbon energy, with a further £60m to retrofit social housing. The Green Homes Grant voucher scheme will be extended with £320m of funding in 2021-22.  

£122m in 2021-22 will support the creation of clean heat networks, helping to meet the target of installing 600,000 heat pumps by 2028.  

The Government will reform the Public Works Loan Board (PWLB) lending terms, ending the use of the PWLB for investment property bought primarily for yield, which presents a risk for both national and local taxpayers.

Levelling Up 

A new multi-year £4bn Levelling Up Fund for England will support local infrastructure, investing in projects worth up to £20m each, such as bypasses and local road schemes. £600m will be available in 2020-2021, with open competitions launched next calendar year.    

A new UK Shared Prosperity Fund (UKSPF) will ensure that total domestic UK-wide funding will match current EU spending, reaching an estimated £1.5bn per year. It will focus on areas of deprivation in the UK, including former industrial areas and coastal communities. £220m of additional funding will help local areas prepare over 2021-22 for the introduction of the UKSPF.

Health and Social Care

NHS spending in 2021-22 will increase by £6.3bn, with core resource budgets growing to £147.1bn. Core capital budgets will grow by £2.3bn in cash terms compared to 2019-20, delivering a 13.4% average real terms increase per year.

£3bn will be provided in 2021-22 to support the NHS recovery from the impacts of Covid-19, including £1bn to begin tackling the backlog in elective procedures and carry out extra checks. £2bn will boost mental health support, invest in the NHS workforce and help ease existing pressures in the NHS caused by Covid-19.  

There will be £300m of new grant funding for adult and children’s social care, in addition to the £1bn announced in 2019 that is being maintained in 2021-22.

£2.1bn will be provided to local authorities through the improved Better Care Fund which will be pooled with the NHS to help meet adult social care needs and reduce pressures on the NHS.

An additional £260m for Health Education England in 2021-22 will allow the training and retention of NHS staff, including increasing the mental health workforce.  

£4.2bn will be allocated in 2021-22 for NHS operational capital investment to allow hospitals to refurbish and maintain their infrastructure. An extra £165m in 2021-22 will be ringfenced to replace outdated mental health dormitories with single en suite rooms.  

£2.1bn will be spent on buying and storing PPE, meeting expected demand and maintaining a 4-month stockpile across 2021-22.  

£9.4m will be invested in improving maternity safety, including through pilots aimed at reducing incidence of birth-related brain injuries.

Farming 

£2.4bn will be spent in 2021-22 to maintain the current annual budget to support farmers. Funding for fisheries in England in 2021-22 will be maintained with £13.5m.

Business Rates and Loans

£519m will support continued delivery of Covid-19 business loans in 2021-22, including a 12-month interest free period for some loans.  

The business rates multiplier will be frozen in 2021-22, saving businesses in England £575m over the next five years. Plans for business rates relief will be announced in 2021. Local authorities will be fully compensated for this decision.

Business rates baselines will not be reset in 2021-22, with existing 100% business rates pilots, such as in Cornwall, maintained for a further year.

The British Business Bank’s Start-Up Loans scheme will be expanded by £56.5m in 2021-22.  

Consultations 

The Government is undertaking a fundamental review of the business rates system and is currently considering responses to the call for evidence. A final report setting out the full conclusions of the review will be published in spring 2021.

The Government will consult on reforms to the New Homes Bonus shortly, with a view to implementing reform in 2022-23.

Environment, Waste and Recycling

£12bn will begin to fund the recently-announced Green Revolution plan, with the intention of galvanising private investment. £1.9bn will be spent on charging infrastructure for electric vehicles and consumer incentives.  

 A £1bn Carbon Capture and Storage (CCS) Infrastructure Fund will help establish four CCS clusters by 2030, capturing up to 10 megatonnes of carbon dioxide a year by 2030. A £240m Net Zero Hydrogen Fund and £81m for hydrogen heating trials will help achieve the goal of developing 5 gigawatts of low-carbon hydrogen production capacity by 2030.  

The Government will introduce mandatory reporting of climate-related financial information across the economy by 2025 with the vast majority of requirements in place by 2023. The UK will also implement a green taxonomy that defines which economic activities tackle climate change and environmental degradation to help better guide investors.

£92m has been announced for the Nature for Climate Fund to help the UK restore more peatlands and plant England’s share of 30,000 hectares of trees a year by 2024. This will include expansion of the Urban Trees Challenge Fund and new investment in Community Forests, supporting an additional 1,000 green jobs. 

Funding for National Parks and Areas of Outstanding Natural Beauty will increase to more than £75m, with a further £7m to progress the England Coast Path and Coast-to-Coast National Trail.

An additional £40m investment in nature recovery will be provided through an extended Green Recovery Challenge Fund.

Defra will ensure producers take more responsibility for packaging waste, introduce a deposit return scheme, and implement consistent collection of waste – including food waste – in every local authority in England by 2024.

Unemployment 

Unemployment currently stands at 4.8%, compared with 3.8% in 2019. The OBR expects unemployment to peak at 7.5% in Q2 2021, falling to 4.4% by 2024.  

A £2.9bn 3-year Restart Programme will support over 1m unemployed people to find work. A £2bn Kickstart programme (for which some funding has already been announced) will create over 250,000 jobs for young people.  

Defence 

Defence will receive additional funding of over £24bn in cash terms over four years. This will cover a long-term programme of modernisation in the space and cyber domains and allowing the UK to forward-deploy more naval assets to protect shipping lanes. A new Space Command will also be established.

£6.6bn of research and development funding has been announced for Defence, covering artificial intelligence, future combat air power and other technologies.   

Roads, Transport and Freeports

£58bn of multi-year investment has been confirmed for road and rail across the country.

£2bn will be provided to the Department for Transport to ensure continued operation of the railways in 2021-22. 

£19bn of transport capital investment will be spent in 2021-22, including £1.7bn for local roads maintenance and upgrades.    

£300m in 2021-22 will drive transformation of bus services. Funding will initially be targeted on any further Covid-19 support that may be required. £120m in 2021-22 will support delivery of over 800 cleaner, greener, quieter zero emission buses. This will help deliver the first All Electric Bus Town by March 2021. 

£10m of resource funding, and the first tranche of a total of £175m of capital funding, in England – partly funded from the Towns Fund – will establish Freeports as national hubs for global trade and investment, promoters of regeneration and job creation, and hotbeds of innovation.

Education and Apprenticeships

The schools budget will increase from £47.6bn in 2020-21 to £49.8bn in 2021-22 – an uplift of £2.2bn. £83m will be spent in 2021-22 to ensure that post-16 education providers can accommodate the expected demographic increase in 16 to 19-year-olds.

£138m will fund in-demand technical courses for adults, equivalent to A level, and to expand the employer-led “boot camp” training model. 

£127m will continue to support people to build the skills they need to get into work, including funding for traineeships, sector-based work academy placements and the National Careers Service.

£110m, including £50m of capital investment, will drive up higher technical provision in support of the future rollout of a Flexible Loan Entitlement to test and develop innovative models for local collaboration between skills providers and employers.

£220m will be spent on the Holiday Activities and Food Programme to provide enriching activities and a healthy meal for disadvantaged children in the Easter, Summer and Christmas holidays in 2021. This will form part of a Flexible Childcare Fund.

£165m will be provided to local authorities through the Troubled Families programme, providing intensive support to families facing multiple interconnected problems.

From August 2021, employers who pay the Apprenticeship Levy will be able to transfer unspent levy funds in bulk to small and medium-sized enterprises (SMEs) with a new pledge function. Unspent levy funds will still expire after 24 months. 

The Government will introduce, from August 2021, a new online service to match levy payers with SMEs that share their business priorities from April 2021 allowing employers in construction, followed by health and social care, to front-load training for certain apprenticeship standards. The Government will explore whether this offer can also be made available in other sectors. 

During 2021-22, the Government will test approaches to supporting apprenticeships in industries with more flexible working patterns, including consideration of how best to support apprenticeship training agencies. Incentive payments for hiring a new apprentice introduced in the Plan for Jobs will be extended to 31 March 2021.

Investments of £1.8bn will be made in 2021-22 to maintain and improve the condition of school buildings. £300m in 2021-22 will fund new school places for children with special educational needs and disabilities, almost four times as much as the Government provided to local authorities in 2020-21. 

£64m will be provided in 2021-22 for the Student Loan Company, including for its transformation programme. 

£72m in 2021-22 will support the commitment to build 20 Institutes of Technology.

£44m will be provided for early years education in 2021-22 to increase the hourly rate paid to childcare providers for the Government’s free hours offers. This is on top of the £66m increase confirmed in 2019. 

South West

809,900 jobs were supported in the South-West by the Coronavirus Job Retention Scheme. 439,000 claims were made in the region under both tranches of the Self-Employment Income Support Scheme. Over £4bn in loans offered to 107,689 South-West businesses by the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme.  

Digital Infrastructure, Science and Innovation

Nearly £15bn will be invested in research and development in 2021-22. The Government has provided an ambitious multi-year settlement for the National Academies and UK Research and Innovation’s core research budgets. These will grow by more than £400m on average per year for the next three years. UK Research and Innovation will next year open its grant competitions to the dispersed network of outstanding public sector labs across the country in everything from 5G through to climate change programmes.

£260m will be spent on digital infrastructure programmes, including the Shared Rural Network for 4G coverage, Local Full Fibre Networks, and 5G Programmes.   

An uplift of over £400m on average per year until 2023-24 will be available for core UK Research and Innovation science.

£490m will be available in 2021-22 for Innovate UK core programmes and infrastructure to support ground-breaking technologies and businesses.

£200m in 2021-22 will fund the Net Zero Innovation Portfolio, to develop new decarbonisation solutions and accelerate near-to market low-carbon energy innovations.

The Department for Business, Energy and Industrial Strategy (BEIS) has been allocated over £3bn of new funding for;

• providing over £1bn towards the construction of 4 new Carbon Capture and Storage plants by 2030
• confirmation of over £1bn to make progress towards delivering investment in the energy efficiency and heat decarbonisation of schools, hospitals and homes.
• £160m to upgrade portside manufacturing capabilities to help build the next generation of offshore wind farms. 
• £240m to support industry to produce low-carbon hydrogen at scale and over £80m to test its use in heating buildings. 
• £525m towards the development of a large-scale nuclear project and advanced nuclear technologies.
• £500m to be spent in the next four years on the development and mass-scale production of electric vehicle batteries and support for associated supply chains.

BEIS has been allocated £557.5m capital funding for the British Business Bank (excluding Covid-19 business support schemes), including: 

• £422m for the Bank’s planned activities in 2021-22, providing access to finance to small businesses across the UK and supporting them to grow. 
• £56.5m to fund an expansion of the Bank’s Start-Up Loans scheme. 
• Resources to make £270m in new commitments to support priorities in innovation and growth and regional finance.
• 50.7m for business support programmes to improve SME productivity through leadership, management and technology adoption.
• £50m next year, as part of a £250m commitment to building a secure and resilient 5G network. 

Communities

£254m of additional funding will tackle homelessness and rough sleeping in 2021-22. 

£25.8m will increase the value of Healthy Start Vouchers to £4.25 in line with the recommendation of the National Food Strategy. Local authority spending through the public health grant will also continue to be maintained. 

£573m will be provided by the Disabled Facilities Grants and £71m in the Care and Support Specialised Housing Fund, supporting people to live independently for longer.

£30m of funding, instituted in 2019, will continue to be provided to tackle child sexual exploitation.

£98m of additional resource funding, bringing total funding to £125m, will enable local authorities to deliver the new duty to support victims of domestic abuse and their children in safe accommodation in England. 

£165m of resource funding for local authorities through the Troubled Families programme will provide intensive support to families facing multiple interconnected problems. 

£150m will continue to strengthen our cultural and heritage infrastructure, including through the Cultural Investment Fund enabling continued investment in the Heritage High Streets programme. £320m will be provided for galleries and museums.

£100m of capital investment will fund Department for Culture, Media and Sport-supported bodies working across culture, heritage and sports. 

Sport England will receive £60m to increase participation in sport and support community projects.  

£100m will deliver the National Citizen Service and fund investment in youth facilities. 

The Towns Fund will regenerate high streets, town centres and communities, providing £621m in 2021-22. 

National Living Wage

The National Living Wage for people aged 23 and over will rise by 2.2%, from £8.72 to £8.91, from April 2021. Rates for age groups between 16-22, and apprenticeships, will also increase.  

Policing and Justice

Police and Crime Commissioners in England will be able to increase funding in 2021-22 with a £15 council tax referendum limit on a Band D property.

£400m will help recruit 20,000 additional police officers by 2023, with a further 6,000 police officers in place by the end of 2021-22. Over 5,000 of these officers have already been recruited. 

Additional funding will be provided to the Crown Prosecution Service to ensure it is fully equipped to improve its response to rape and sexual assault cases.

£63m will tackle economic crime, including support for the National Economic Crime Centre (NECC), along with £20m for Companies House reform. 

£337m will help the criminal justice system in England and Wales recover from the effects of Covid-19. This includes £275m to reduce backlogs in the Crown Court caused by Covid-19 and £40m to offer additional support to victims of crime, including victims of domestic abuse. 

£119m of additional funding will support the ongoing response of the wider justice system to Covid-19. This includes £76m to further increase family court and employment tribunal capacity to reduce backlogs and £43m to ensure that courts and prisons remain Covid-safe. 

The Government will also provide new funding to support prison leavers at risk of homelessness into private rental tenancies. 

 Further Information

The full Spending Review, including executive summary, is available here.  

The Local Government Chronicle has said that the £2.5bn boost for local authorities spending review “falls far short”. 

The LGA responds to the spending review.