Chancellor announces government Spending Review 2020

Last week, Chancellor Rishi Sunak announced the government spending plans for 2021/22 in the latest Spending Review. The Spending Review sets out the departmental budgets and devolved administrations’ block grants for 2021/22.

The coronavirus has had a huge impact on the UK economy this year, causing hardship for families and businesses across the UK. The pandemic has caused the deepest recession on record. The Office for Budget Responsibility’s forecasts that GDP is expected to shrink by 11.3% in 2020. To support the economic recovery the government announced £100 billion of capital spending, which is aimed at growing the economy and supporting jobs across the UK.

The Treasury Spending Review sets out that day-to-day spending will increase by 3.8% on average (excluding Covid-19 spending) compared to 2019/20.

Unemployment levels have risen significantly since the coronavirus pandemic began earlier this year. To combat this the government has announced a three-year UK-wide programme which will support over 1 million long-term unemployed people. The programme will receive £2.9 billion in funding.

In order to protect the lowest paid workers, the government has accepted the recommendations from the independent Low Pay Commission (LPC) and are increasing the National Living Wage. Workers over 23-years-old will see an increase of 2.2% from £8.72 to £8.91, effective from April 2021.

The government has also accepted the LPC’s recommendation to increase the National Minimum Wage from April 2021. The hourly rates have increased as follows:

  • 21 to 22-year-olds from £8.20 to £8.36, increase of 2%
  • 18 to 20-year-olds from £6.45 to £6.56, increase of 1.7%
  • 16 to 17-year-olds from £4.55 to £4.62, increase of 1.5%
  • Apprentices from £4.15 to £4.30, increase of 3.6%

In line with inflation, the government will increase the 2021-22 Income Tax Personal Allowance and Higher Rate Threshold. September’s Consumer Price Index (CPI) figure will be used as the basis for setting National Insurance limits and thresholds. Class 2 and 3 National Insurance contributions for 2021-22 will also be set based on September’s CPI.

Public sector pay rises have been temporarily paused for 2021-22 however, pay rises for over 1 million NHS workers will still continue. The lowest paid workers in the public sector, who earn less than £24,000, will receive a minimum increase of £250 . The pay bill for public sector workers represents around 25% of total government expenditure. By pausing the pay rises for many public sector workers it will allow for the government to protect public sector jobs and invest in public services.

Additional funding of £38 billion will be granted to support public services and address both the health and economic implications due to Covid-19. The total support for public services will be £113 billion in 2020/21.

The government has increased the Universal Credit standard allowance and Working Tax Credit basic element for 2020-21. For a Universal Credit claimant, aged 25 or over, the standard allowance is now £409.89 per month until April 2021, this has been increased from £317.82.

For further details on the government’s spending plans, visit the website.