Today’s Comprehensive Spending Review from the Chancellor of the Exchequer Rishi Sunak is to include a £4.3 billion boost to jobs as Britain faces a flood of redundancies.
Along with what his own officials concede are “scary” new economic forecasts, Sunak is going to announce that jobs will be at the heart of his policy, rather than tax rises as some have feared.
Companies have been slashing jobs through the pandemic as they readjust for low levels of demand for their goods and services. Further widescale redundancy programmes are currently ongoing.
Reports have cited his officials describing how “jobs, jobs, jobs” will be the CSR’s central message. Unemployment currently stands at 4.8% but is expected to rise sharply to nearer 8% next year.
The Financial Times reported that the Chancellor will annouce £2.9 billion in a Restart programme to help people find jobs and £1.4 billion to go into Jobcentre Plus to help find work for more people. Jobcentre Plus had its budget cut since 2015.
Today’s statement was to have been the government’s big, three year set piece moment to declare its vision for a Boris Britain.
A moment, it was hoped, when the Prime Minister could escape from the weeds of Covid and give voters the chance to breathe in his plans to make Britain flourish in the sunlit pastures of life unshackled by Europe.
Sadly, those Covid weeds would not let him go.
Sunak made clear to him last month it was impossible to make three year plans when the pandemic was developing so unpredictably and causing such damage to the economy.
Instead, Sunak is delivering a one year plan – for the 2021-22 financial year.
Here are a few pointers to watch out for:
It’s important to remember that, unlike the five or more mini-Budgets Sunak has presented since March, this is not a “fiscal event” – meaning it is only designed to talk about spending, not taxing.
However, there have been numerous leaks suggesting the Treasury was minded to look at ways of taxing the better off, and businesses.
The government’s Office for Tax Simplification set the hares running earlier this month with some whacky arguments as to why capital gains tax should be brought in line with income tax.
That has sparked a flood of requests from entrepreneurs and investors to their brokers and financial advisers demanding advice on how quickly they can sell their investments in UK plc.
The vast majority of them being Conservative voters, the CGT move looks extremely unlikely. Even without looking at it through a party political lens, most economists agree taxing investment in this way would probably damage the economic recovery before it has even started.
However, Sunak may take the opportunity to soften up the electorate for tax rises further down the line. Specifics will be few and far between, but he may talk obliquely about the need for the burden to be borne by the better off.
He’s rather hidebound by the tax triple lock on income tax, National Insurance and VAT but one tax specialist mooted that Sunak could raise the idea of a “solidarity surcharge”. This was the 1995 tax supplement of 5.5% levied on Germans to fund the costs of reunification. As is the way of such things, Germans still pay it to this day.
Whatever Sunak says on tax, expect it to be broad brush ahead of a March Budget.
The independent Office for Budget Responsibility will be issuing its latest forecasts for the economy.
Economic growth for the year will be revised down to around minus-10% - the worst performance for over 300 years.
There will be many apocalyptic headlines around these new forecasts.
But keep an eye out for the comparison with the OBR’s forecasts from March when it comes to government borrowing,
Back then, it predicted a collapse in tax receipts that would see borrowing come in at somewhere around £372 billion a year (taking the middle of the range of its scenarios).
That looks more likely now to be revised down to around £350 billion. Currently, we’re tracking well below the OBR’s forecasts from March.
Last month’s actual cumulative borrowing was at £214.9 billion against the OBR’s projection of £291.4 billion.
Whisper it softly, but that could arguably give a wily chancellor £76 billion of slack to spend without having to raise taxes.
Longer out, the OBR is likely to show public sector borrowing still over £100 billion at the time of the next election.
The time for austerity is over, even with the coronavirus, Boris Johnson has said. He has already last week given the Ministry of Defence its biggest pay cheque in decades and has previously announced a four-year spending settlement for schools.
Key to watch is how Sunak tinkers with the day-to-day public spending budgeted by his predecessor Sajid Javid last September for 2020-21. That was for 4.1% departmental spending increases and 6.4% capital spending.
Which departments get the lolly… and which don’t
The biggest losers have already had their signal – public sector workers.
It was widely trailed at the weekend that they would have their pay frozen to reflect the conditions being endured by many in the private sector who have faced either pay cuts or redundancy and reduced hours.
This excludes the NHS but will hit firefighters, care workers and other public sector staff.
The Centre for Policy Studies has said such a freeze would save £23 billion over three years.
The government has already leaked that the UK aid budget will be cut from 0.7% to 0.5% of national income.
Many departments not protected by previous commitments will be left shouldering potentially massive cuts.
The NHS, the most protected of all, is likely to get a £3 billion support package to help it get over the Covid crisis.
Sunak will throw some money at a newly merged counter-terrorism unit of intelligence officers and senior police officers.
That often promised, rarely delivered boom in spending on roads, rail and other big capital projects will probably feature highly in the Chancellor’s speech. Particularly to projects north of the Watford Gap.
The government has made great play from the levelling up agenda aimed at boosting its newfound voters in the North.
Don’t expect much good news here for Southerners, less still for London.