Commenting on the Spending Review, Ryan Shorthouse, Chief Executive of Bright Blue, said:
“The eye-watering COVID-releated expenditure to support the economy and public services is necessary. There is no alternative. Government needs to keep spending to support job retention and the economic recovery as demand has collapsed.
“The final bill will not be pretty. The huge structural budget deficit will need to be reduced, not least to ensure that the state is able to support us again financially during future crises. Considering our historic and projected growth rates, that will inevitably mean a mixture of tough spending cuts and tax rises, eventually.
“But we are not at the moment facing a fiscal emergency. If we were, the Government would need to generate significantly more savings than the roughly £10 billion from partially freezing public sector pay and cutting aid spending. So, these announcements are very odd, considering they are dwarfed by the £394 billion that is being borrowed to service all the additional expenditure at the moment.
“A benign interpretation of these announcements is that the Chancellor is planning to spread the eventual fiscal retraction over a longer period. A less benign interpretation would be that he is posturing, aware that many of his colleagues are angry that current lockdown and spending measures are antithetical to traditional conservative thinking.
“Beyond COVID, better supporting so-called left-behind communities – reviving economic and civic activity – should be the priority for the Conservative Government, for both political and moral reasons. The new Levelling Up and Shared Prosperity Funds, though welcome, restore similar regeneration schemes that were introduced a few decades ago, especially the Single Regeneration Fund and, later, the New Deal for Communities in the 1990s. These initiatives had some success, but the leading lesson the government needs to learn is that it was wider economic trends – especially the level and nature of employment opportunities – that really made a difference to these areas. Also, with MP sponsorship and departmental determination, there is a danger that the allocation of the new levelling-up funding is seen as partial and unfair.”
Public spending
- The Government has announced a partial public sector pay freeze, with exemptions for NHS workers and those earning less than £24,000
Commenting, Sam Robinson, senior researcher at Bright Blue, said:
“Today’s commitment to exempting key NHS workers from the public sector pay freeze and protecting the pay of low-earning public sector workers is commendable. However, it remains the case that public sector wages are 1.5% lower in real terms than a decade ago, and the gap between public and private sector remuneration at its lowest level in decades.
“It was disappointing to see the Chancellor apply a selective focus on average earnings when explaining the partial pay freeze. While low-skilled public sector employees tend to have an earnings advantage relative to the private sector, the picture among high-skilled workers is more complex, and in some roles the pay differential is in favour of the private sector. A simplistic focus on overall average earnings risks undermining efforts to improve recruitment and retention over the longer term.”
Unemployment and welfare
- The Government has announced £2.9 billion for a 3-year long Restart programme to help benefit claimants find work
- The Government has confirmed £1.6 billion of funding for the previously announced Kickstart scheme to provide subsidised jobs for young people
- The Government has confirmed £1.4 billion of funding for the previously announced increase in work coach numbers and expansion of Jobcentre Plus capacity
Commenting, Anvar Sarygulov, senior research fellow at Bright Blue, said:
“Between the new Restart programme, and the previously announced doubling of work coaches and the Kickstart scheme, the Government’s efforts to help people back to work look impressive in terms of scale, matching the severity of the ongoing crisis. This ambitious and proactive approach will need to build on the lessons from previous schemes of this kind, such as the Work Programme. In particular, it is vital to design the Restart scheme in a way that provides sufficient assistance to those who face greater barriers to work, such as disabled people.
“It is severely disappointing that the Government has not committed to extending the £20 uplift in Universal Credit and legacy benefits for at least another year. This may yet come, but the uncertainty for those on modest means is very unsettling. “Even before the COVID-19 pandemic, benefit levels were significantly eroded to insufficient levels by previous freezes and cuts. Alongside the economic shock of the pandemic, which has affected those on lower incomes the most, failure to extend the benefit uplift will severely harm millions of low-income households.”
Levelling Up Fund
- The Government has announced £4 billion for a ‘Levelling Up Fund’ to support local infrastructure projects
Commenting, Sam Robinson, senior researcher at Bright Blue, said:
“The new Levelling Up Fund announced today is similar to previous place-based schemes that existed many decades ago, such as the Single Regeneration Fund and the New Deal for Communities in the 1990s. These did have some successes. But the Government should really have an independent process, rather than MP sponsorship and departamental determination, to maintain confidence and support for such welcome funding.
“Unfortunately, the need for local MPs to give their blessing to a bid, as the Chancellor alluded to today, risks undermining the objectivity and targeting of vital regeneration projects, not to mention sparking disputes over the fairness of funding allocations.”
International aid
- The Government has cut the international aid budget from 0.7% of GNI to 0.5% GNI in 2021, with an intention to return to 0.7% when the fiscal situation allows.
Commenting, Phoebe Arslanagić-Wakefield, researcher at Bright Blue, said:
“The Government’s manifesto-breaking decision to shrink the overseas aid budget generates a £4 billion per year saving, which doesn’t even make a dent in the approximately £400 billion borrowed to fight the effects of coronavirus. The cut reads like a shallow attempt to signal fiscal conservatism and credibility.
“As recently as September 2020, the Foreign Secretary told colleagues that the 0.7% commitment was ‘written in law’ and would not change. Not only has this manifesto promise been broken, the Chancellor failed to provide a timeframe of when the UK will return to the 0.7% commitment, insisting it will be restored when the fiscal situation allows. Considering the fiscal situation will be bad for a very long time, our aid expenditure – which overwhelmingly has significant and positive effects on reducing global poverty – will be significantly less generous for a very long time, undermining this country’s global reputation.”
[Image: Number 10]
