The Covid state

Analysis of the economy and public finances ahead of the 2020 Spending Review

The Chancellor is set to unveil his Spending Review against a radically changed economic and fiscal backdrop to the one he faced in March. Although unemployment is set to peak lower and later than had been expected back in the Summer, the long-term economic scarring from this crisis is set to be significant. The OBR’s forecasts for GDP could imply a lasting 3 per cent reduction in the size of the economy, worth £1,000 for every adult in Britain.

The return to lockdown and higher spending on public services mean that borrowing is set to surge, largely as a result of £275 billion of Government policy measures implemented in response to the unprecedented health and economic challenges the country faces.

Faced with a grim economic outlook and very high uncertainty, the Chancellor is likely to avoid some tough choices, such as resetting the UK’s fiscal framework or the balance between tax and spend in future years. But he will provide detail as to how much Covid-related spending will carry on into 2021-22, as well as the non-Covid departmental spending allocations for next year.