Your 2020 Spending Review summary

November 25, 2020

Chancellor Rishi Sunak has unveiled the government’s spending plans for the coming year in his Spending Review given on Wednesday 25 November.

A Spending Review sets out how the government plans to spend money and what each department will receive. It covers a range of areas, like health, policing, and education. It also covers public sector pay and money for the devolved administrations of Scotland, Wales, and Northern Ireland.

Usually, a Spending Review will cover several financial years, allowing the government and departments to plan. However, Rishi Sunak set out spending plans for the 2021/2022 tax year only due to the economic uncertainty caused by the Covid-19 pandemic.

Covid-19 impact: Economy predicted to contract by 11.3% this year

The Spending Review was delivered against a backdrop of challenges. The Office for Budget Responsibility (OBR) predicts the government will borrow £394 billion in 2020/21, far higher than in previous years as a result of the pandemic.

This figure represents around a fifth of UK GDP and means borrowing is at its highest levels in peacetime history. While the Chancellor committed to supporting Covid-19 support schemes, he notes that this level of borrowing is unsustainable in the medium term.

Economic forecasts from the OBR also paint a gloomy picture. The economy is forecast to contract by 11.3% this year, the largest fall in output for 300 years. While the economy is expected to grow by 5.5% next year and 6.6% in 2022, Rishi Sunak said the economic damage would be lasting. Output is not expected to return to pre-crisis levels until the fourth quarter of 2022.

Due to the economic challenges, the OBR predicts unemployment will reach a peak of 7.5% in the second quarter of 2021.

Rishi Sunak described the economic emergency as ‘only just beginning’. He added the immediate priority was to protect people and livelihoods, but the Spending Review also delivers ‘stronger public services’ and a ‘once in a generation investment in infrastructure’.

Covid-19 response

Unsurprisingly, the cost of responding to the Covid-19 crisis was top of the agenda. The government is providing £280 billion to get the country through Covid-19, the Chancellor said.

Next year, he has set aside an initial £18 billion to spend on testing, PPE, and vaccines.

Public sector pay

Rishi Sunak argues that, compared to private sector workers, public sector employees have benefited from higher pay rises and more security during the crisis. As a result, he said he cannot justify across the board pay increases.

One million nurses, doctors, and other NHS employees will receive a pay rise. Other public sector workers that earn below a median wage of £24,000 (around 2.1 million people) will receive a guaranteed pay rise of at least £250. All other public sector employees will have pay rises paused next year.

National living wage

Around two million people will benefit from a 2.2% national living wage increase, taking this to £8.91 per hour. The increase will apply to all workers over the age of 23, as previously the national living wage was only available to those aged 25 and over.

Overseas aid

Sunak confirmed claims that the UK will abandon the 0.7% overseas aid target and spend 0.5% of national income on aid next year. This will amount to £10 billion.

The Chancellor argued that spending so much on international aid is difficult to justify while borrowing is so high. The government plans to return to the 0.7% target once borrowing is lower.

Departmental spending

Total departmental spending will increase by 3.8% in real terms, the fastest growth rate in 15 years. Headline announcements for departmental spending include:

  • The NHS benefiting from an extra £3 billion
  • £1 billion is also allocated to tackle treatment backlogs and enable delayed operations to go ahead
  • £300 million extra grant funding for councils for social care
  • A multi-billion pound increase in annual defence spending over the next four years, creating 40,000 jobs
  • An extra £2.2 billion for schools
  • A new £4.6 billion package to help people get back to work
  • £2 billion extra for public transport, including subsidies for the rail network
  • £4 billion over four years to provide 18,000 new prison places.

Infrastructure and ‘levelling up’

Investment in infrastructure will total £100 billion next year, with plans to deliver the highest sustained investment in four decades. This is supported by plans to launch a new infrastructure bank, which will be based in the north of England.

The Chancellor also announced a ‘levelling up’ fund of £4 billion. Local areas can bid for the funding to support local projects.

Questions?

Please contact us if you have any questions about the Spending Review and what it means for you.

What our clients say

The people we help are at the heart of what we do. Here are some of their testimonials.

I would highly recommend Darius and John. I’ve used a financial adviser previously and could never get in contact with them when I needed their help. Stratton Wealth Management have been excellent from the start. They are always available to talk, and they also don’t talk in financial jargon!

Dave Rigby -

A client since 2015

Having recently transferred my financial management to Stratton Wealth Management, I have been extremely impressed with the highly professional service I have received. I feel I have been fully involved in all decision making, and the company's highly skilled advisers have shown commitment and patience in any dealings I have had with them. I have also always found them to be easily accessible for any discussion I may require.

Denise Thornton -

A client since 2019

As a business owner and father of four children, finances are usually the last thing we think about. Stratton oversees and manages our finances, both in terms of advice for my business and our personal investments. It is comforting to know that our retirement, investment and life insurance planning has been taken care of. Darius and John are always so efficient in dealing with our affairs. As someone with no real understanding of the ins and outs, it has been fantastic to have experts giving us great advice and making sure our best interests are always the top priority.

Lee and Claire Parkinson -

Clients since 2016

Darius deals with my family’s finances and is a very trusted adviser. We meet a number of times a year, but I know I can call him any time if I have any questions. He is proactive, helpful and friendly!

Jonathan Dennis -

A client since 2019

I knew I needed to begin saving and planning for the future but didn’t know where to start. Stratton helped me to understand my finances and put together a savings plan that is affordable and works for me. I now have and an ISA and a pension, and whilst retirement is many years away, I have the peace of mind that I am saving for my future. I look forward to working with them for many years to come.

Martin Corrigan -

A client since 2016

I have been impressed with the advice and service provided by Stratton Wealth Management and have always found Darius to be approachable, dependable and highly professional in his approach. It is reassuring to be able to have such a high level of confidence and trust when it comes to financial advice.

Russell Jones -

A client since 2018

Many thanks indeed for your in depth report for my client Mrs H – it is most thorough and above all readable. This might sound particularly strange; however you may well gather that in my profession we see many such reports, and I often feel that if the adviser fills it with charts and graphs it evidences a level of research. In truth most of what is produced is readily obtainable from the internet.

I would like to thank you (and your organisation) for your prompt and professional attention to my requirements on behalf of my client. As a practice we shall definitely be putting Stratton Wealth Management on our “preferred supplier list".

Colin Dunstall, Donaldson Dunstall Solicitors -

A client since 2015