Here we go- Chancellor is on his feet, so we're off Spending Review wise. Expect:
- grim economic news
- more spending (lots of it)
- warnings of tax rises/spending restraint to come (but almost none of it set out - unless it largely affects people in other countries)
Chancellors wants to save "lives and livelihoods" - we know because he told us twice in about ten seconds
First announcement: extra spending needed to tackle covid next year = £55bn. This isnt a one year hit
GDP hit this year 11.3% - worst for 300 years (catastrophic but not as catastrophic as OBR previously feared)
Economic hit lasts: takes until end of 2022 to get back to pre-crisis size of economy and 3% permanent hit to GDP (bad, but smaller than almost any previous recession)
Borrowing to be £394bn this year - more than twice the peak of the financial crisis. Borrowing comes down but remains elevated - and debt on a rising trajectory
It’s the policy response rather than the economic hit itself that is driving this (rightfully) huge level of borrowing
Unemployment forecast is for the peak to be lower and later (7.5% in middle of next year - 2.6m people). Remains above pre-crisis levels in middle of this decade (would still be much faster decline than previous recessions).
NHS pay rise but public sector pay freeze for rest of public sector - those earning below £24k get £250 pay rise (I think they are meant to be grateful after expectation management over last few days)
National Living Wage up 18p to £8.90/hr. Well below the 50p expected pre-crisis but reflects lower wage growth and leaves us on track for abolishing low pay in middle of decade
We’ll have to dig into details of next years spending - lots on covid but less clear on normal spending (technical point but our measurement of public sector costs/output is playing haywire with ‘real terms’ rise figures for this year and next)
Lots of promises on schools, police, prisons - reflects govt holding on to its pre-crisis political strategy: we’ve ended austerity we promise (doing so has got A LOT harder = tax rises to come)
Overseas aid cut (around £3bn) is about having a proof point of tough choices that doesn’t actually affect people in the UK (at least in short term)
£4bn levelling up fund - areas bid for cash. No way this is going to be doled out without political shenanigans(Chancellor explicitly says MPs must support schemes - obviously would only be an accidental side effect if that made MPs grateful)
All done: as expected headlines are 1) economy down 2) spending and borrowing up 3) softish warnings of tougher choices to come
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Something we didn't have time to do justice to overnight... defence spending. I think most people will be quite surprised by what is going on
You'll remember a few weeks back the Prime Minister announced a multi-year settlement for defence - containing the "largest military investment in 30 years" gov.uk/government/new…
The papers that focus on these things were very happy - this signalled the "end of an era of retreat". You'd have thought a hiring spree for soldiers, pilots and cyber warfare experts was coming. But... telegraph.co.uk/politics/2020/…
Right, have figured out what's happened to normal public service spending for next year - it's been cut by £10bn vs what was set out back in March. So £14.8bn increase next year is 40% less than previously planned
Why is this important? Because it points to the structural challenge the government has in rhetorically sticking to it's pre-crisis strategy of ending austerity/loads of money around, while substantively trying to tone it down given we have a smaller economy
Chancellor is basically hoping he can spend like hell on Covid, but hold the line on IT ALL being temporary. This is a bold assumption (think health, social care, - not to mention it requires him to cut £1000 from 6million families in April which isnt going to happen)
Government has now announced headline details of their new employment support scheme - £2.9bn over 3 years to "help one million unemployed people in their job search"
£2.9 billion is a lot for this type of scheme (means more over the coming 3 years than was spent in 5 on a similar scheme, the Work Programme, after the financial crisis
This scheme will offer support to those out of work for more than a year - which is an important group to focus on given long term out of work do particularly badly when unemployment is high (ie because firms can hire those only recently exiting other jobs)
To distract us from the excitement of who you will/wont see over Christmas the government is putting on a Spending Review tomorrow. What should you expect?
New economic forecasts will show this year's disaster wasnt quite as disastrous as @OBR_UK thought in July BUT economy will be over 10 per cent smaller this year than pre-crisis = biggest fall in over 300 years.
Main impact of brilliant vaccine news is reduced uncertainty about when a full recovery can get underway - it won't magic away lasting economic damage. Expect a permanent 2 to 3% GDP hit by mid 2020s = £1,000 for every adult (this is much lower than previous crisis)
Times reporting that new National Living Wage rate for next year will be announced tomorrow. Headline is an 18p increase (ignore the headline about the rise being “scrapped” - that’s not right) thetimes.co.uk/edition/news/r…
This is a smaller increase than we’ve been used to (big rises seen since 2016) BUT would still leave National Living Wage on course to hit its target of eliminating low pay in middle of 2020s because target is set relative to (lower than thought pre-pandemic) typical pay levels
Crucial background here is that low paid workers have faced the biggest health risks AND biggest economic hits from this crisis
We're now eight months into this crisis - what has it done to family budgets? A thread.
The economy reopening over the summer only saw small reductions in income falls (partly because unemployment also rose, and partly because policy protected families from depths of initial GDP falls)
Income hits have been quite persistent ie over 80% of those who had lower incomes recently had also had lower incomes during the first lockdown. This matters - bigger income hits are harder to deal with, but so are longer lasting ones