The government’s spending review, announced on Wednesday 25 November by the Chancellor, Rishi Sunak, provides a stark snapshot of the impact of the coronavirus on current public finances, as well as further details of planned expenditure on public services like the NHS, education, transport and the police.
Spending Reviews normally cover three or four years but this review has been limited to the next 12 months, due to the economic uncertainty caused by the coronavirus.
The key announcements:
• Public Sector borrowing in 2020 will rise to £394 billion – equivalent to 19% of GDP
• The government has spent £280 billion this year to support the economy and will spend a further £55 billion to support public services next year.
• The Office of Budget Responsibility (OBR) forecasts that the economy will contract by 11.3% this year; economic output is not expected to reach pre-Covid-19 levels until the fourth quarter of 2022.
• Public sector pay rises will be paused next year – except for those earning less than £24,000 who will get a pay rise of at least £250. NHS staff will also be exempt from the pay freeze.
• Unemployment is predicted to rise to a peak of 7.5%, or 2.6 million people, in the second quarter of 2021. It is then forecast to fall to 4.4% by the end of 2024.
• There will be a £3 billion ’Restart scheme’ to help the one million long-term unemployed back into work.
• The National Minimum Wage will rise to £8.91 per hour for those over the age of 23.
• A new ‘levelling up’ fund of £4 billion will be introduced to fund local development projects.
What does this mean for financial planning?
Whilst significant progress is being made in tackling the health consequences of the coronavirus with the development of vaccines, the Chancellor announced that the economic fallout had only just begun and is set to remain with us for many years to come.
It is essential to regularly review your financial plans so they remain on track. If you do have any concerns on the impact of today’s announcements or you have any questions regarding your financial plans, please contact your Origen adviser or call us on 0344 209 3925.
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CA6010 Exp: 11/2021