Comprehensive Spending Review

Today the Chancellor outlined in the Autumn Statement and Comprehensive Spending Review (CSR) projections for government expenditure in the next five years.

The biggest surprise announcement was that the proposed changes to the tax credit regime which were rejected by the House of Lords were scrapped in their entirety. Whilst this will be of great relief to many individuals the statement generally continued the recent trend of a reduction in governments share of activity within the economy.

It is important to understand the context and scale of the challenge the UK continues to face. The CSR document reveals that GDP growth is expected to be broadly consistent across the forecast period (up to 2020-2021) at around 2.4%.

Within the main components of GDP business investment is considered to increase significantly in the next few years, but items such as household consumption are expected to slowly cool over the period. There is also an interesting period in 2018 when general government investment shrinks by 1.6% on the previous year.
These figures are presented against a backdrop of the unemployment rate of just over 5% and inflation returning to the target rate of 2.0% by 2019. Public sector net borrowing in 2015-16 is expected to be 73.5bn falling to £4.6bn in 20187-19 before entering surplus. This results in government debt falling to 71.3% by 2020-21.

To put this in context central government gross debt interest will be £56.6bn in 2020-21 and therefore is bigger than all departmental Capital Budgets (Capital DEL) combined. This demonstrates not only the scale and cost of public sector debt but also highlights the importance of the government being able to finance such debt at a low cost.

A selection of announcements from the Autumn Statement (click here) are listed below:

International and defence

Funding of the Strategic Defence and Security Review in full.
Protects police spending in real terms over the Spending Review period.
Commits to meeting the NATO investment pledge to spend 2% of GDP on defence.
An additional £3.5bn to a Joint Security Fund to 2021 to increase spending on the military and intelligence agencies.
Invests £1.9bn in cyber security and £3.4bn in new counter terrorism activity.
Continue to spend 0.7% of national income on overseas aid.
Invest £290m in the BBC World Service.
Creates a new £1.3bn Prosperity Fund to assist the growth of emerging and developing economies.

Devolution

Significantly reduce the central government grant to local authorities.
Introduce a new council tax precept for social care.
Undertake the full devolution of business rates.
A real-terms increases to Northern Ireland Executive capital budgets.
A real-terms increases to Scottish Government capital budgets.
Consult on updating the Transparency Code to require all local authorities to record details.of their land and property assets in a consistent way.
Work towards further devolution deals with other major city regions.
Deliver a £12bn Local Growth Fund between 2015-16 and 2020-21.
Creating 26 new Enterprise Zones, including expanding 8 Zones on the current programme.
Spend £13bn on transport in the North over this Parliament.
Develop a longterm transport strategy for the region through the creation of a new Midlands Connect Strategic Board.

Health

The ringfence on public health spending will be maintained in 2016-17 and 2017-18.
Provide the NHS in England £10bn per year more in real terms by 2020-21 than in 2014-15.
Invest up to £300m a year by 2020 to fund new diagnostic equipment and additional staff capacity for cancer treatment.
Invest an additional £600m in mental health services.
Invest £10m in expanding the Healthcare Innovation Test Bed programme.
The creation of a social care precept to give local authorities who are responsible for social care the ability to raise new funding. This will work by giving local authorities the flexibility to raise council tax in their area by up to 2% above the existing threshold.

Pensions

Increase the basic State Pension to £119.30 a week.
The government will publish today its guidance for pooling Local Government Pension Scheme Fund assets into up to 6 British Wealth Funds, containing at least £25bn of Scheme assets each. This would enable them to improve investment into projects such as infrastructure.

Education

Protect schools funding in England in real terms over the Spending Review period.
The development of new loans for further and higher education, with almost £1bn expected to be lent by 2020-21.
The Spending Review reforms the funding system for health students by replacing grants with student loans and abolishing the cap on the number of student places for nursing, midwifery and allied health subjects.
Provide investment of over £1.3bn up to 2019-20 to attract new teachers into the profession, particularly into Science, Technology, Engineering and Mathematics (STEM) subjects.
The apprenticeship levy on larger employers will be introduced in April 2017 at a rate of 0.5% of an employer’s paybill. Each employer will receive an allowance of £15,000 to offset against their levy payment.
The government will establish a new employer-led body to set apprenticeship standards and ensure quality.
The government will create 5 National Colleges and will support a new network of Institutes of Technology across the country.
The government will lift the age cap on new loans to postgraduates from 2016-17 so they are available to all those under 60.

Energy

Over the CSR period the government intends on reducing the projected cost of green policies on the average annual household energy bill by £30 from 2017.
The extension of the Warm Home Discount to 2020-21 at current levels of £320m a year, rising with inflation.

Science

Protect the £4.7bn science budget in real terms.
A new Global Challenges research fund of £1.5bn over the next 5 years.
The government will subject to legislation introduce a new body – Research UK – which will work across the seven Research Councils.
Over £130m capital will be invested in Department for Environment, Food and Rural Affairs’ (DEFRA) science facilities.
The British Business Bank (BIB) will retain the £400m of additional funding for Enterprise Capital Funds that was announced at Autumn Statement 2014

Technology

Invest £1.8bn to digitally transform government services.
Invest nearly £1bn in the next generation of 4G communications network for the Emergency Services.
Invest £1.3bn to transform HMRC into one of the most digitally advanced tax administrations in the world, with access to digital tax accounts for all small businesses and individuals by 2016-17.
Consult on options to simplify the payment of taxes.
A new target to reduce the costs to business of tax administration by £400m.

Housing

The CSR caps the amount of rent that Housing Benefit will cover in the social sector to the relevant Local Housing Allowance.
limit Housing Benefit and Pension Credit payments to 4 weeks for claimants who are outside Great Britain, from April 2016.
Deliver 400,000 affordable housing starts by 2020-21.
200,000 Starter Homes which will be sold at a 20% discount compared to market value to young first time buyers, with a £2.3bn fund.
135,000 Help to Buy: Shared Ownership homes.
10,000 homes that will allow a tenant to save for a deposit while they rent.
At least 8,000 specialist homes for older people and people with disabilities.
Further reforms to the planning system, including establishing a new delivery test on local authorities, to ensure delivery against the number of homes set out in Local Plans.
Release public sector land with capacity for 160,000 homes.
Amending planning policy to support small sites, extending the £1bn Builders’ Finance Fund to 2020-21.
£2.3bn in loans to help regenerate large council estates and invest in infrastructure needed for major housing developments.
Invest £310m to deliver the first new garden city in nearly 100 years, at Ebbsfleet.
Extend the Help to Buy: Equity Loan scheme to 2021.
Higher rates of Stamp Duty Land Tax will be charged on purchases of additional residential properties with effect from 1 April 2016. The higher rates will be 3 percentage points above the current rates.

Procurement

Help forces to improve police efficiency by taking steps to drive down the cost of police procurement by up to £350m and encouraging greater collaboration.

Welfare

A real terms increase in spending on Access to Work, providing specialist IT equipment, or support workers.

Motoring

Introduce measures to end the right to cash compensation for minor whiplash injuries, and will consult on the details in the New Year.

Equality and childcare

A new £15m annual fund equivalent to the VAT raised each year on sanitary products will support women’s charities.
Doubling the free childcare entitlement from 15 hours to 30 hours a week for working families with three and four year olds from September 2017, there is, however, an upper income limit per parent of £100,000 and a minimum weekly income level per parent equivalent to 16 hours.
From 2017-18 will invest £300m to increase the average hourly rate childcare providers receive.
Provide at least £50m of capital funding to create additional places in nurseries.
Maintain in cash terms the Department for Education’s central children’s services budget.
Funding for universal infant free school meals will also be maintained.
The government will introduce the first ever national funding formula for schools, high needs and early years, so that funding is transparently and fairly linked to children’s needs. The government will launch a detailed consultation in 2016 and implement the new formulae from 2017-18.

Infrastructure

The government will publish a National Infrastructure Delivery Plan next spring, setting out in detail how it will deliver key projects and programmes over the next 5 years.
The government has increased its overall capital departmental investment plans by £12bn between 2016-17 and 2020-21.
The government will increase funding for the Renewable Heat Incentive to £1.15bn by 2020-21.
A second Roads Investment Strategy will be published before the end of this Parliament.
£250m to tackle the potholes.
Freeze regulated rail fares at no more than inflation (RPI) for the entire Parliament.
A £475m fund to which local areas can bid for money to pay for large local transport projects.
The government will commit up to 10% of shale gas tax revenues to a Shale Wealth Fund.
£250m for an ambitious nuclear research and development programme.
Allow Network Rail to sell assets and re-invest proceeds in rail infrastructure.
Privatise the Green Investment Bank with a sale expected to be concluded during 2016-17.