{"id":22938,"date":"2020-11-26T23:31:13","date_gmt":"2020-11-26T23:31:13","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=22938"},"modified":"2020-11-28T04:43:53","modified_gmt":"2020-11-28T04:43:53","slug":"spending-review-2020-the-experts-react","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/spending-review-2020-the-experts-react\/","title":{"rendered":"Spending Review 2020: the experts react"},"content":{"rendered":"

Alex de Ruyter<\/a>, Birmingham City University<\/a><\/em>; Anupam Nanda<\/a>, University of Manchester<\/a><\/em>; Drew Woodhouse<\/a>, Sheffield Hallam University<\/a><\/em>; Ernestine Gheyoh Ndzi<\/a>, York St John University<\/a><\/em>; Jonquil Lowe<\/a>, The Open University<\/a><\/em>, and Simon J Smith<\/a>, Staffordshire University<\/a><\/em><\/p>\n

\u201cThe health emergency is not yet over, and the economic emergency has only just begun.\u201d With a global pandemic for a backdrop, Chancellor Rishi Sunak has announced a short-term spending review for the year 2021. With a freeze on public sector pay, an economy declining more than it has in 300 years and no mention of Brexit, experts from across the country share their reactions.<\/p>\n

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Economy<\/h2>\n

Drew Woodhouse, Senior Lecturer in Economics, Sheffield Hallam University<\/strong><\/p>\n

Rishi Sunak announced<\/a> \u00a3280 billion in his spending review to be spread across several sectors, with little mention of Brexit or the climate crisis. This included \u00a318 billion for COVID-19, \u00a3250 million for rough sleepers, \u00a32 billion for transport and \u00a33 billion to local councils.<\/p>\n

This came in the context of the highest levels<\/a> of borrowing \u201cin peacetime\u201d. What was most stark was that the government cut more channels to growth than it did create them. This spending review focused on short-term government spending policy \u201cplasters\u201d, with considerations of longer-term sustainability measures.<\/p>\n

<\/div>\n

The most important question in the review was how bad economic forecasts are looking. Economic output is expected to contract by 11.3% this year – the worst result for 300 years<\/a>. With no expectations to match our pre-crisis trend level until late 2022 and the \u201cnatural level of unemployment<\/a>\u201d not being met until 2024, this is indeed dire.<\/p>\n

There was an undertone in the chancellor\u2019s comments that, to improve the economy\u2019s health, his response should target real growth through indirectly supporting the productive \u201csupply\u201d capacity<\/a> of the economy \u2013 the amount businesses and workers can produce. There was also a formal acceptance that deeply ingrained structural issues, that have gripped the UK for years, should also be at the forefront of a \u201creform\u201d effort.<\/p>\n

At the heart of the crisis is the uneven<\/a> effect it has on regions and communities. So introducing a levelling up fund and an infrastructural bank<\/a> based in the north of England is a welcome approach.<\/p>\n

Then there was contradiction on wages. He announced measures to protect wages of those who earn lower incomes, citing that this could fuel some \u201cmarginal\u201d growth, whilst also accepting that this recession has been far worse for low-paid workers than anyone else. Yet by freezing public sector wages (except for NHS nurses and doctors), Sunak restricted a source of economic stimulus at the time we need it most.<\/p>\n

Private sector wages decline quicker<\/a> and do not pick up the demand slack, while public sector wages can act as an \u201cautomatic stabiliser\u201d in a downturn because they typically grow more quickly during recessions<\/a>. The freeze will also have a worse affect on regions with a higher proportion<\/a> of public sector jobs, which are the same regions already worst affected<\/a> by the crisis.<\/p>\n

While effective economic support is vital, it must be part of a wider plan to get the economy going again, restarting growth and supporting job creation.<\/p>\n

\n

Jobs<\/h2>\n

Ernestine Gheyoh Ndzi, Senior Lecturer, York Business School, York St John University<\/strong><\/p>\n

Early on in his speech, the chancellor stated that, despite the pandemic, the UK still has one of the lowest unemployment rates in Europe. But this statement is highly misleading as, in the UK, people in precarious and insecure work \u2013 such as those on zero-hours contracts \u2013 are considered employed. Indeed, these types of contracts can have<\/a> a hugely devastating impact on people\u2019s lives \u2013 yet a ban on them has been ignored by the government.<\/p>\n

But the headline statement of the day was the pay freeze for all public sector workers \u2013 apart from nurses and doctors in the NHS. The chancellor talked of restraining public sector pay levels to retain consistency with the private sector. Yet compared to the private sector, public sector pay has fallen drastically in the past decades<\/a>.<\/p>\n

Employees in the public sector, especially frontline services, have worked incredibly hard throughout this pandemic. And a pay freeze would likely affect worker morale and performance<\/a>.<\/p>\n

The pay freeze will be interpreted as a lack of recognition and appreciation for the work public sector employees are doing. There is also the risk that this will affect frontline staff\u2019s mental health<\/a> \u2013 which has already been impacted during the pandemic.<\/p>\n

The government needs well motivated workers to rebuild the economy that has been hit hard by COVID-19. But this will not be achieved by damaging the morale of workers.<\/p>\n

There\u2019s also the fact that the public sector has, for some years, been struggling to recruit and retain staff in areas like the NHS and teaching, and this pay freeze will most likely exacerbate difficulties with recruitment and retention of workers<\/a>.<\/p>\n

In this sense, it seems the government still hasn\u2019t learnt its lesson from the impact of the two-year pay freeze<\/a> imposed across the public sectors in 2010, that resulted in increased gender inequality and widened the gender pay gap. With the UK economy in its steepest decline for centuries, while a pay freeze may seem like a good solution, it\u2019s likely to create more problems in the long run.<\/p>\n

\n

Personal finance and pensions<\/h2>\n

Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University<\/strong><\/p>\n

Income is the key driver of personal finances. The chancellor has announced an income freeze for all public sector workers apart from NHS doctors and nurses and a small flat-rate increase of \u00a3250 for those earning less than \u00a324,000 a year.<\/p>\n

The lowest earners who are on the national living wage or minimum wage will also see an increase in their hourly rate from April of 19p to \u00a38.91 an hour. But this still trails behind the \u201creal\u201d living wage<\/a> that people are estimated to need to meet their living costs of \u00a39.50 an hour (\u00a310.85 in London).<\/p>\n

The income tax personal allowance and national insurance thresholds and bands are being increased from April in line with inflation (0.5%). This will give most benefit to people on modest earnings.<\/p>\n

The government has also confirmed that changes to the retail prices index<\/a> (RPI), a commonly used measure of inflation, will go ahead \u2013 though not until 2030. This will see the formula for calculating RPI brought into line with the more commonly used consumer price index<\/a> (CPI) that typically records inflation rates around 1% a year lower than RPI. The retired, in particular, will be affected, if they have private pensions and annuities that are \u201cincreased\u201d each year in line with the RPI.<\/p>\n

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Consumers will be enouraged to decarbonise their homes.<\/span>
\nPompaem_Gogh\/Shutterstock<\/a><\/span><\/figcaption><\/figure>\n

On the spending side of household budgets, the spending review confirmed funding for the government\u2019s ten point plan<\/a> for green recovery recently announced<\/a> by the prime minister. In addition to the big push towards electric vehicles, this includes encouraging homes \u2013 whose heating and cooking account for around a fifth of the UK\u2019s carbon dioxide emissions<\/a> \u2013 to give up their gas boilers in favour of ground and air-heat pumps. But it seems likely that, even with the current Green Homes Grant<\/a>, most households will eventually find they need to invest heavily in \u201cgreening\u201d their home heating system \u2013 though running costs thereafter may be lower.<\/p>\n

Overall, personal finances are likely to come under pressure over the next few years as the government starts to bring its finances back to more sustainable levels. But at last it seems this government is taking the need to tackle climate change seriously, which is important as the green industrial revolution holds the promise of jobs and incomes to replace those lost in the pandemic.<\/p>\n

\n

Infrastructure and levelling up<\/h2>\n

Anupam Nanda, professor of urban economics and real estate, University of Manchester<\/strong><\/p>\n

Infrastructure is key for unlocking economic opportunities and supporting prosperity. Infrastructure investments tend to have very long-term implications for the economy and society. Today\u2019s announcements have put emphasis on using infrastructure spending to support and accelerate economic recovery from the pandemic.<\/p>\n

Sunak has tried to address concerns of funding inequality across and within regions with the creation of a \u00a34 billion \u201cLevelling Up Fund\u201d. Local areas can bid directly for support for projects from this fund.<\/p>\n

<\/div>\n

Using national and regional infrastructure investments to close the regional inequality gap is welcome, as areas such as the north of England continue to suffer heavily from the ongoing pandemic. However, whether this is enough remains to be seen and will depend on how the fund is administered.<\/p>\n

The creation of a new infrastructure bank \u2013 to be headquartered in the north of England \u2013 is good news. This will replace the UK\u2019s involvement with the European Investment Bank and, by encouraging private sector involvement in infrastructure projects, will lead to more streamlined investment.<\/p>\n

The spending review also placed emphasis on green and digital infrastructure and renewable energy use. This is very much needed.<\/p>\n

Much will depend on the choices and types of specific infrastructure projects, as well as the mixture of national, regional and local investment. The success of these projects will rely on skill development and cooperation across the government departments and agencies involved. It will also demand collaboration across all government levels, down to local authorities.<\/p>\n

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\nRead more:
\nWhy local governments will feel aggrieved by this spending review<\/a>
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COVID-19<\/h2>\n

Alex de Ruyter, Professor of Economics and Director of the Centre for Brexit Studies, Birmingham City University<\/strong><\/p>\n

For this fiscal year, the government is still very obviously in \u201cwhatever it takes\u201d mode. That remains partially true in certain areas for 2021-22, although in other respects the government is very much looking to scale back support.<\/p>\n

Total support due to COVID-19 is estimated to be around \u00a3280 billion this financial year. The largest portion is job support \u2013 an estimated \u00a353.7 billion on the furlough scheme and a further \u00a319.6 billion on support for the self-employed. A total of \u00a3113 billion has been allocated to government departments, of which almost half is for health. A further substantial amount goes directly to the devolved administrations, who have the power to decide how it is spent.<\/p>\n

However, this is misleading, since the vast majority is being spent on COVID-related procurement rather than frontline services. Test and trace, operated by the private sector, has been allocated \u00a322 billion (a very large increase from the initial \u00a312 billion). A further \u00a315 billion is for personal protective equipment (PPE), which is eye-catching given the government\u2019s poor record in getting value for money on this. Likewise \u00a32.7 billion is being spent on developing and procuring vaccines.<\/p>\n

Next year sees COVID-related support scaled back to a \u201cmere\u201d \u00a355 billion, with nearly half set aside as contingency. The additional recovery money for the NHS seems miserly \u2013 that only \u00a31 billion is being spent on addressing the backlog for elective treatments is particularly concerning.<\/p>\n

Funding for councils \u2013 \u00a35.4 billion in 2020-21 and \u00a33 billion in 2021-22 \u2013 likewise seems tiny relative to increases in demand.<\/p>\n

All of the money will be borrowed, although the spending review suggests this won\u2019t be a problem, with government spending on debt interest actually expected to fall very substantially over the next few years.<\/p>\n

\n

Armed forces and foreign aid<\/h2>\n

Simon J. Smith, Associate Professor of Security and International Relations, Staffordshire University<\/strong><\/p>\n

The chancellor claimed the spending review \u201cstrengthens the United Kingdom\u2019s place in the world\u201d, and that the UK will remain \u201copen and outward looking\u201d. However, the financial resources required to make a convincing case for a global Britain were lacking.<\/p>\n

Rishi Sunak said the foreign aid budget would be cut to 0.5% of national income (down from 0.7%) in 2021, as retaining the current budget would be \u201cdifficult to justify to the British people\u201d. Some of these savings, however, will be allocated to defence. It was announced soon after that there would be \u00a324 billion investment in defence over the next four years, \u201callowing us to provide security not just for our country but around the world\u201d.<\/p>\n

Although it is not stated as such, it would seem there has been a reduction to the foreign aid budget in order to provide savings to boost defence investment. Neither of these announcements came as a surprise, as the prime minister signalled \u201cthe biggest defence investment since the end of the cold war\u201d on November 19<\/a>, saying that \u201cthe defence of the realm must come first\u201d.<\/p>\n

There is no doubt that this is a serious escalation of investment and a demonstration that defence secretary Ben Wallace and chief of the defence staff General Sir Nick Carter have convinced the Prime Minister to confirm four-year funding for the military<\/a>.<\/p>\n

What will be prioritised for investment? Current suggestions are that the money is for a national cyber force, a space command and an artificial intelligence agency. An even larger question is for what grand strategic purpose these capabilities will be used.<\/p>\n

In any case, tough decisions will need to be made in terms of pursuing savings elsewhere in the force. As Michael Clarke, former director general of the Royal United Services Institute thinktank put it<\/a>, which older areas of the armed forces are going to \u201chave to be cut to be able to afford the new bells and whistles\u201d? Moreover, will the British people think these eye-watering costs are justified in the age of COVID and when the government is set to borrow \u00a3394 billion this year alone<\/a>.<\/p>\n

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\n
\nRead more:
\nCuts to UK foreign aid budget are shortsighted and could damage British interests<\/a>
\n<\/strong>
\n<\/em><\/p>\n

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<\/figcaption><\/figure>\n

Listen to Recovery, a series from The Anthill Podcast<\/a>, to hear more about how the world recovered from crises including the Lisbon earthquake, world wars, the collapse of the Soviet Union and the 2008 financial crisis. Start here with episode one on the recovery after the Black Death<\/a>.<\/em>\"The<\/p>\n

\n

Alex de Ruyter<\/a>, Professor of Economics and Director of the Centre for Brexit Studies, Birmingham City University<\/a><\/em>; Anupam Nanda<\/a>, Professor of Urban Economics & Real Estate, University of Manchester<\/a><\/em>; Drew Woodhouse<\/a>, Senior Lecturer in Economics, Sheffield Hallam University<\/a><\/em>; Ernestine Gheyoh Ndzi<\/a>, Senior Lecturer at York Business School, York St John University<\/a><\/em>; Jonquil Lowe<\/a>, Senior Lecturer in Economics and Personal Finance, The Open University<\/a><\/em>, and Simon J Smith<\/a>, Associate Professor of Security and International Relations, Staffordshire University<\/a><\/em><\/p>\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Alex de Ruyter, Birmingham City University; Anupam Nanda, University of Manchester; Drew Woodhouse, Sheffield Hallam University; Ernestine Gheyoh Ndzi, York St John University; Jonquil Lowe, The Open University, and Simon J Smith, Staffordshire University \u201cThe health emergency is not yet over, and the economic emergency has only just begun.\u201d With a global pandemic for a […]<\/p>\n","protected":false},"author":44,"featured_media":22939,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[6498,7689,679,7189,9022,3268,9023],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/22938"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=22938"}],"version-history":[{"count":2,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/22938\/revisions"}],"predecessor-version":[{"id":22956,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/22938\/revisions\/22956"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/22939"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=22938"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=22938"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=22938"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}