This week’s Spending Review statement made by the Chancellor confirmed some key points on infrastructure and budgetary matters and leaves us with a strong feeling that the Budget next March is likely to be one of the most significant for many years.
Whilst the Chancellor focused on affirming the importance of supporting the health and livelihoods of the country at the present time, he also emphasised that the government needs to put in place a sustainable fiscal policy for restoring stability to public finances. This will inevitably involve a review of taxation and, as we know, there have been recent recommendations made to the government by the Office of Tax Simplification in relation to capital gains tax.
A summary of the measures announced in the Spending Review statement is show below.
- An infrastructure bank headquartered in the North of England will be established as part of a National Infrastructure Strategy, to work with the private sector to finance major new investment projects across the UK. The bank is expected to be up and running by the Spring.
- Local areas will be able to bid for funding from a new Levelling Up Fund with up to £4 billion of resources available. The Fund will invest in local infrastructure that has a visible impact on people and their communities and will support economic recovery.
- Extra £38 billion of public services support in 2020/21, taking the total spending on the Covid-19 crisis this fiscal year to over £280 billion. In the next financial year there will be another £55billion Covid-19 expenditure.
- Public sector pay freeze next year, apart from NHS workers and those earning below £24,000 a year.
- National Living Wage (NLW) will increase in April by 19p (2.2%) to £8.91 an hour and the eligibility age will reduce to 23 (from 25). National Minimum Wage rates will also rise.
- Overseas aid – spending will reduce from 0.7% of GDP to 0.5% – a cut of approximately £4 billion in 2021/22, to be restored when the financial situation allows.
- From 2030, the Consumer Prices Index (CPI) including owner occupiers’ housing costs (CPIH) will effectively replace RPI. This will impact on index-linked gilts and pension increases, as CPIH is generally lower than RPI (for example 0.9% against 1.3% at October 2020).