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Spending Review: Did the "Whatever it takes" Chancellor live up to his nickname?

By Fraser Raleigh
25 November 2020
Public Affairs

Fraser Raleigh, former Conservative Special Adviser to the Cabinet Office, gives his view on the Chancellor's Spending Review

Today’s Spending Review, in common with the other economic plans the Chancellor has had to produce in recent months, was a temporary bridge to get over the next stage of the pandemic, rather than the foundations for what comes after it. 

When first announced, the Chancellor had planned for his first Spending Review to confirm a multi-year spending settlement, but the ongoing uncertainty of the pandemic forced it to be downgraded to cover departmental budgets for just 2021-22. 

To tackle the next stage of the ongoing economic effects of the pandemic there were announcements on employment, with a £3bn fund to support those out of work for more than a year in the context of unemployment levels that are forecast by the Office for Budget Responsibility to peak at 7.5% around the time the Chancellor delivers his next Budget. 

As expected, public sector pay was partially frozen, with the Chancellor keen to emphasise exemptions for NHS doctors and nurses and lower paid workers, but insisting that he ‘could not justify’ across the board pay rises for the public sector at a time of squeezed incomes for private sector workers, a stance the Government believes voters will – by and large – go along with. 

The Chancellor also attempted to put flesh on the bones of the levelling-up agenda with a new National Infrastructure Bank to be based in the north of England and a new ‘Levelling-up Fund’ that will be deliberately held closely by central government, with local authorities invited to apply for support for projects that (significantly) can be delivered by the end of this Parliament. Both funding streams underline how aware the Government are that voters in the ‘Red Wall’ who delivered the Conservatives their majority need to see tangible change in their areas if they are to stick with the party at the next election.  

Despite the commitments to new investment, the Chancellor told MPs that the current levels of borrowing and debt are not sustainable, implying that changes are coming as soon as he judges the economic situation allows. Tellingly, he reaffirmed his belief that the UK had only been able to borrow and spend so much during the pandemic because of what he called the ‘strong public finances’ at the start of it, underlining the extent to which the approach he has taken in recent months is against his natural political instincts. 

The next Spring Budget will see the extent to which those instincts re-emerge, as he faces the task of balancing tax and spending decisions knowing that almost every tax rise he considers will meet significant protest from his own benches (such as changes to capital gains tax or pensions tax relief) and where he will be constrained by his own manifesto from tinkering with Income Tax, VAT or National Insurance, which make up the bulk of the tax take. 

Either way the Chancellor will be hoping that by the time of the next Budget the health emergency allows him to plan much further into the future than he was able to today to respond to the ‘economic emergency’ which, he said ‘has only just begun’. 

Director of Public Affairs and former Labour Party adviser Christine Quigley gives her take on the response of the response from Shadow Chancellor Anneliese Dodds MP

Today’s Spending Review presented a challenge for Labour – how to criticise the Government for making spending commitments that Labour has been calling for for months, and in some cases, years.  

Shadow Chancellor Anneliese Dodds tackled this by focusing on calling the Government’s competence and responsibility into question; criticising waste in awards of key PPE contracts while at the same time forcing key workers outside the NHS to tighten their belts. While the former is more targeted at galvanising Labour’s base than the general public, Labour will be looking to tap into the disappointment that many public sector workers will be feeling from today’s announcement of a public sector pay freeze. With the average public sector worker today earning 1.5% less than in 2010 in real terms, teachers, police and civil servants who cast their ballots for the Conservatives in 2019 could be tempted back by Labour focusing on improving living standards for public sector workers. This could make a significant difference in the former ‘Red Wall’ seats that swung to the Conservatives last year. 

Labour has focused heavily on skills and tackling unemployment since the summer, and Dodds was critical of the Chancellor for announcing key schemes that won’t kick in until April next year. Today we heard the OBR’s forecast that unemployment will peak at 7.5% next year, or around 2.5 million people out of work, before falling slowly as the economy recovers. This will almost certainly be an issue that the Opposition continues to raise through the life of this Parliament. 

On infrastructure, Dodds identified a key tension in the Government’s plans – on the one hand, bringing forward the “biggest investment in new roads”, while on the other making strides towards meeting ambitious Net Zero targets. With former Energy and Climate Change Secretary Ed Miliband now back in Labour’s Shadow Cabinet and strong support from across the party, the transition to Net Zero and creation of green jobs will be a key theme in the coming year. Just yesterday, Labour MPs tabled an amendment to the Financial Services Bill to ensure regulators in the sector have regard to Net Zero, which was voted down by the Government. Labour will be looking to businesses across sectors to demonstrate progress on decarbonisation, and holding the Government to account. 

The creation of a new infrastructure bank to catalyse private investment isn’t a new idea; in fact, Labour began calling for a National Investment Bank in 2012 under Ed Miliband and it featured in both Corbyn’s 2017 and 2019 manifestos. The National Infrastructure Strategy published today alongside the Spending Review provides a little more information about this, but we will have to wait until Budget 2021 to hear “comprehensive details regarding the operations, mandate and scale of the bank”. This provides another opportunity for Labour to welcome the Government implementing policies it developed, while at the same time criticising it for delays in bringing forward detailed plans. 

Overall, the Shadow Chancellor today gave an assured performance that held the Government’s feet to the fire on jobs and growth. The triple challenges of coronavirus, Brexit and the climate crisis mean that a lot could change between now and the next election, so Labour will be holding the Government to account on its progress on recovering jobs, retraining workers and rebuilding business.  

Photo credit: HM Treasury