Chancellor of the Exchequer, Rishi Sunak, has unveiled the government’s spending plans for public services in the coming year. In a statement to parliament, he spoke of the government’s plans for health, education and other public services for 2021.
The ‘mini-budget’ has set out some major spending cutbacks from what has been seen throughout the pandemic and is looking towards a path to correct the public deficit (where more money is being spent by the government than it raises in taxes) which has ballooned massively during the pandemic.
Public Sector Pay
One of the major announcements is not a good one for around 2 million public sector workers, who are set to have a pay freeze next year. This means that many teachers, firefighters and police officers will not see any pay rise next year, which will mean they are effectively worse off, as inflation rises will result in their money not going as far as it did before.
Public sector workers have already seen a ‘real terms’ decrease in their wages since the 2008 financial crisis, of around 1.9%, meaning that they are earning less, relative to the cost of living, than they were more than a decade ago.
There is better news for some public sector workers, however, with anyone earning less than £24,000 exempt from the freeze and eligible for an increase of more than £250 next year, whilst NHS workers are also set to be exempt from the freeze.
The government have been heavily criticised for a ‘return to austerity policies’ despite the government repeatedly saying that they wanted to avoid punishing people as a result of the rising public spending and debt.
National Living Wage
Sunak also set out an annual increase in the living wage, with a 2.2% rise to £8.91 an hour. This is an amount that is believed to be a minimum that a person can live on.
The living wage franchise is also set to be expanded, with 23 and 24-year-olds to be included for the first time, with it previously only applying to those over 25.
Public health and the NHS
The government are projecting that they will spend £18bn on Covid testing, vaccines and PPE in the coming year, with the NHS being given a budget increase of £6bn and a further £3bn specifically for dealing with Covid pressures.
The government are putting a further £1 billion into dealing with treatment backlogs that have been seen throughout the crisis, and £500 million for tackling the looking mental health crisis, that evidence suggests has been exacerbated by the pandemic.
Local government and education
Schools will see an extra £2.2 billion of funding for 2021, or a 2.2% increase per pupil, whilst public transport is also receiving an increase in funding.
Local authorities are seeing a 4.5% increase in their budgets for 2021, amounting to £3 billion, with a further £250 million allocated to councils to tackle rough sleeping.
International Aid and the Military
One of the more controversial aspects of the review is the cutting of the foreign aid budget from 0.7% GDP to 0.5%. The 0.7% figure was a target set by the UN General Assembly and the UK have met the figure for almost a decade, with David Cameron’s government pushing forward their commitment to this.
The cut will mean £4 billion a year less being spent on support for tackling global poverty. The government have stated that they will return to 0.7% in 2022-23 if the public finance and the national deficit are in a healthier position. The move has been heavily criticised by former Minister for International Development, Rory Stewart, and former Prime Minister, David Cameron, as well as sustainable development minister, Baroness Sugg, who tendered her resignation.
The government have also announced a significant spending increase in the military, with a £16.5 billion increase expected over the next four years. The government estimates that this will create around 40,000 new jobs across the UK, although it has been criticised for only being enough to fulfil the current military budgets and operations, seeing no real terms expansion in the budget. It has been criticised from the other side from being unnecessary, especially when other budgets are being stripped back.
They are also setting up a new centre for artificial intelligence in the defence sector, a move welcomed by many who feel that the UK’s military capacity is outdated and no longer fit for purpose.
State of the public finances
The Chancellor set out a gloomy state of affairs for the UK’s public finances. Rishi Sunak said that the economy is expected to shrink by 11.3% in 2020, which would be the largest fall seen in more than 300 years; worse than even the Wall Street Crash in 1929.
However, the recovery is expected to be fairly swift – assuming that the vaccines being developed allow for the resumption of normal life – with the Chancellor stating that they are predicting growth of 5.5% in 2021 and 6.6% in 2022, with pre-crisis economic output expected to be achieved by the end of 2022.
Unemployment is also set to be significantly worse in 2021, with the Chancellor stating that more than 2.5 million people will be out of work by the spring, bringing the unemployment level to the highest since the 2008 financial crisis.
They have also announced that government borrowing for the year will be at its highest ever peacetime level, at 19% of GDP, or £394 billion for the year. This will bring the government debt to a total of 92% of GDP by the end of the year and to almost 100% of GDP in 2025-26.
To the annoyance of many, Rishi Sunak did not once mention Brexit and its potential impact on the economy in 2021. This is despite the fact that the UK is set to leave the EU on 31st December and as of yet, do not have a deal with the European Union.