What to expect from Rishi Sunak's Spending Review?

Chancellor Rishi Sunak will detail how taxpayers' money will be spent on health, education and the poorest households over the next 12 months, as he delivers his Spending Review on Wednesday.

This process, known as a Spending Review, will also include details of how the government plans to deliver on some of the promises it made during the last election campaign, such as improving the economy of less wealthy areas of the UK.

Rishi Sunak is also expected to announce pay cuts for public sector workers and give details on how much more money will be required to fight the coronavirus crisis.

Usually a Spending Review would cover a period of three or four years to give government departments enough certainty to make long-term plans.

The coronavirus pandemic disrupted so many aspects of life this year that long-term planning is particularly difficult. So, the government has decided that this Spending Review will only cover one year, from April 2021 to April 2022.

Normally the amount of money a Chancellor would allocate in a Spending Review would be strictly limited by how much he or she would be prepared for the government to borrow.

But this year the pandemic has caused government borrowing to skyrocket.

With businesses closed and workers on furlough, government is taking less money in taxes. And it is spending more than planned on measures to fight the virus and support the economy.

Before the pandemic, the government expected to borrow around £55bn this financial year.

Seven months in, the government has already borrowed £215bn, and it is expected to exceed £370bn by the end of the year.

Nonetheless, Rishi Sunak has said people "will not see austerity" when he makes spending announcements for public services this week, despite the billions spent on the pandemic response.

However, the Chancellor also warned that forecasts to be revealed this week would lay bare “the scale of the economic shock” caused by the COVID-19 crisis with the economy “experiencing significant stress” with more to come. Although tax rises have not been explicitly mentioned, Treasury insiders admit there will have to be some “big” decisions on taxation ahead of a spring Budget.

Posted on Nov 24, 2020.

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