An underwhelming spending review that posed more questions than answers

26 November 2020

By Charlotte Alldritt

6 minute read

Charlotte Alldritt, Director of CPP, gives her analysis on the 2020 spending review.

The Chancellor largely let the figures speak for themselves in yesterday’s spending review (SR). The scale of the UK’s “economic emergency” is so grave there was little, if any, scope for padding out this fiscal statement with the usual political sniping, Dad-joke humour or the odd ‘rabbit out of a hat’. Borrowing will hit a peacetime precedent of £394bn in 2020, four times the amount that the former Chancellor, Alistair Darling, contended with during the financial crisis. £55bn will be spent in the coming year on boosting public services to tackle Covid-19 – half of the annual NHS budget again. Whilst some expect a sharp bounce-back in output thanks to the impact of a vaccine, the OBR predicts it will take until the last quarter of 2022 for the economy to get back to pre-crisis levels.

When the OBR first issued its projections for the economic impact of coronavirus in May, we at CPP delved deeper into the data. What would this mean for places across the country, each differently affected by the crisis? How might this compound decades of regional inequality that the government’s own levelling up agenda was designed to tackle? Would we see the same places let down in the years after deindustrialisation and again in wake of the 2008 financial crash? What we anticipated then, and what we have seen since confirms, sadly, yes.

So, despite the welcome announcement of a £4bn levelling up fund – the only real rabbit in this SR – the numbers published yesterday present more questions than answers. Will local leaders be able to pool additional funding with existing revenue streams and capital pots, including (where applicable) the Town Deal fund, UK Shared Prosperity Fund (once allocated) and invest these strategically, amplified by private sector and even philanthropic resource? Will the holistic approach suggested by the Chancellor – itself a huge recognition from the top of HM Treasury that spending needs to be considered in the round – allow for investment in social as much as physical infrastructure? Resource spending as well as capital? The latter would be a bold move for Whitehall, but there is precedent in the North of Tyne Combined Authority’s devolution deal (2019).

Will co-ownership of the levelling up fund between HM Treasury, the Department for Transport and Ministry for Housing, Communities and Local Government mean that central government will keep an iron grip on where and how funding can be used? The involvement of MPs in decision making – a misdirected attempt to help the Prime Minister appease increasingly twitchy Conservative backbenchers – could be a way to ensure greater collaboration and place-shaping at a local level. But it might also quash the voices of council leaders and mayors, who have seized political ground over recent months.

In many ways the Chancellor is caught between a rock and a hard place – both in ideological and public finance terms. On the one hand, he might have called on the enterprising zeal of the private sector to help us grow our way out of this Covid-sized financial hole. This would have appealed to members of the Conservative party keen to ensure the size and role of the State retreats as swiftly as possible, signalling a belief in the power of innovation and the market to save us, just as we have seen with Big Pharma and the development of several vaccines (albeit with close collaboration with our world-leading universities). Here he could have reiterated the government’s commitment to double public R&D investment, helping to bolster that of the private sector and – by allocating a certain proportion out of the Golden Triangle in the South East – lent a helping hand to the levelling up agenda. He could have made a nod to this government’s approach on industrial policy, supporting sectors – such as green energy – in which a light, guiding hand of the State could support not just job creation, but the shaping and acceleration of new markets. Yet many parts of the private sector might feel they are all out of zeal when they are struggling to think how they will survive this next period of regional restrictions.

On the other hand, the Chancellor might have appealed to the Blue Wall and One Nation Tory MPs with a doubling down on the role that the State can play in investing to grow – recognising, as he said, the importance of the ‘infrastructure of our daily lives’ – extending not only to roads, rail and housing construction, but the community assets and services foundational to the prosperity of towns and villages across the country. Think libraries, youth services, affordable childcare, community mental health support, education and skills CPP has long argued for investment in social infrastructure as a driver of productivity, more inclusive economic growth and long-term fiscal sustainability. Can the state of the public finances justify more spending? Are we in a position to risk non-capital spending? But can we risk not to, if people are to retrain, upskill and access new economic opportunities? If public sector net debt is to take generations to pay down, then we need to take a generational approach to who benefits and how from the outlay.

The Chancellor has finally recognised the numbers of people who stand to lose their jobs, who could not be ‘tided over’ by the best intentions of the job retention schemes. Increasing employment support will be critical, but with vacancy rates so low, there is a more worrying question as to whether the jobs will be there for people to move into. The answer is likely that both approaches are needed to deal with the scale of economic emergency we face. The Chancellor tried to navigate a path through but seemed to me to fall through the gap – choosing neither nor both. While the economic storm clouds ravage, it was an underwhelming response.