Covid-19
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Budgets & fiscal events
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Public spending
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Economy and public finances

Here today, gone tomorrow

Putting Spending Review 2020 into context

Torsten Bell
Torsten Bell
Nye Cominetti
Nye Cominetti
Karl Handscomb
Karl Handscomb
Jack Leslie
Jack Leslie
Cara Pacitti
Cara Pacitti
Hannah Slaughter
Hannah Slaughter
James Smith
James Smith
Daniel Tomlinson
Daniel Tomlinson

This briefing note provides an assessment of the measures announced in the November 2020 Spending Review. The backdrop to that Review was the reality of an on-going health crisis and a huge hit to the economy which looks set to leave lasting damage to both household and public finances. In response, the Chancellor has ramped up coronavirus spending this year and next, while reducing spending elsewhere.

Key findings

  • The initial economic hit from coronavirus may not be quite as catastrophic as previously thought, with the UK economy expected to shrink by 11.3 per cent this year, the biggest decline in over three centuries. While welcome news on vaccines means the economy will bounce back, the recovery will ultimately be incomplete, with the economic ‘scarring’ leaving it permanently 3 per cent smaller, or £1,400 for every adult in Britain.
  • A lastingly-smaller economy means lower wages, down by £1,200 a year per worker in 2025 compared to pre-pandemic expectations. The hit to household incomes that will follow comes on top of the unprecedented financial crisis and Brexit-induced living standards squeeze of the 2010s. As a result, household incomes, which grew by 40 per cent in the 15 years prior to 2008, are set to have only increased by a quarter of that (10 per cent) in the 15 years since.
  • The Chancellor’s policy response is the main reason that borrowing this year (£394 billion) will be more than twice the peak seen during the financial crisis, but the smaller economy is still pushing borrowing up by £57 billion by the middle of the decade.
  • Faced with a grim economic outlook, and an ongoing public health crisis, Rishi Sunak has chosen to double down on coronavirus spending, which is set to total around £335 billion (£12,000 per household) over this year and next. The British state has never seen anything like this outside of the Second World War, with government spending as a share of the economy reaching 56 per cent.
  • The Chancellor set out plans to spend less when normal times return, setting out a reduction of £10 billion in planned non-coronavirus public service spending next year (rising to £13 billion in 2024-25).

Further reading

Happy new tax year
Six big changes to pay, tax and benefit policy – and how they affect households across Britain
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Torsten Bell, Adam Corlett, Alex Clegg
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Putting the 2024 Spring Budget in context
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Camron Aref-Adib, Torsten Bell, Mike Brewer, Molly Broome, Alex Clegg, Nye Cominetti, Adam Corlett, Emily Fry, Jonathan Marshall, Charlie McCurdy, Louise Murphy, Felicia Odamtten, Cara Pacitti, Simon Pittaway, Hannah Slaughter, James Smith, Greg Thwaites, Lalitha Try
The Election Budget
Spring Budget 2024 preview
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Alex Clegg, Adam Corlett, Cara Pacitti, Hannah Slaughter, James Smith, Greg Thwaites
Torsten Bell
Torsten Bell Chief Executive
Nye Cominetti
Nye Cominetti Principal Economist
Karl Handscomb
Karl Handscomb
Jack Leslie
Jack Leslie
Cara Pacitti
Cara Pacitti Senior Economist
Hannah Slaughter
Hannah Slaughter Senior Economist
James Smith
James Smith Research Director
Daniel Tomlinson
Daniel Tomlinson