Executive Summary
The Budget takes place against the backdrop of the global outbreak of COVID-19. The fundamentals of the UK economy are strong and the government is well prepared to protect people’s health and support their economic security throughout this period of temporary economic disruption. The Budget sets out a plan to support public services, individuals and businesses that may be affected by COVID-19.
While the economy continues to face challenges, the government’s careful management of the public finances means that it is able to support the economy in the short term, while investing in the future. The Budget announces investments in the roads, railways and digital networks that will underpin growth over the coming decade, as well as the world-class hospitals, schools, colleges and police forces that people rely on every day.
The Budget supports the government’s ambition for a fair and sustainable tax system that helps people and families with the cost of living, funds the first class public services they expect and creates an environment for business to succeed. The government will build on this across the Parliament, creating a tax system fit for the challenges and opportunities of the 21st century.
The Budget also sets out a plan to invest in research and development (R&D) and cutting-edge technologies. It provides support for people in every nation and region of the UK to gain the skills that they will need as the economy evolves, so that the nation can seize the opportunities of the next decade and fulfil its potential.
In the year that the UK hosts the COP26 UN climate summit, the Budget takes steps to decarbonise the economy and protect the UK’s natural habitats, ensuring that every part of the UK economy is ready for the challenges of decarbonisation, and ready to capitalise on the opportunities to become leaders in the green markets of the future.
This is the first Budget of a new government, the first of a new decade, and the first since the UK’s departure from the European Union (EU). It is a Budget that lays the foundations of the UK’s future prosperity and delivers on the government’s promises to the British people.
Economic context
The UK economy has many strengths. It has a globally competitive tax system, it is home to many highly innovative firms, has a world-beating science and research base, and has sound, independent macroeconomic institutions. Employment growth remains strong – the employment rate reached a record high in the three months to December 2019 – and earnings growth remains above inflation.
The recent COVID-19 outbreak is creating short-term uncertainty. The Office for Budget Responsibility’s (OBR) economy and fiscal forecast does not reflect the now global spread of COVID-19 nor an outbreak in the UK. The OBR notes that the spread and impact of a COVID-19 outbreak clearly represents a downside risk to the forecast, but the scale is highly uncertain and the economic impact is likely to be temporary.
Looking further ahead, the UK also faces challenges in the medium to long term. Productivity remains low compared to other countries and unevenly distributed across the country. And, in common with other advanced economies, the transition to a net zero emissions economy by 2050 will require radical changes in every sector. The Budget lays the foundations to address these challenges.
Outlook for the public finances
Over the past decade, the government has taken action to restore the public finances to health, reducing the deficit by four fifths. This, and the historically low cost of borrowing, mean that the government can support the economy in the short term, while providing significantly more investment in public services and infrastructure to support growth in the long term.
The Budget launches the Comprehensive Spending Review 2020 (CSR), setting out the overall level of public spending within which the CSR will be delivered. The CSR will conclude in July and will set out detailed spending plans for public services and investment, covering resource budgets for three years from 2021-22 to 2023-24 and capital budgets up to 2024-25.
The CSR will prioritise improving public services, levelling up economic opportunity across all nations and regions, strengthening the UK’s place in the world and supporting the government’s ambitions to reach net zero carbon emissions by 2050. It will focus on linking departments’ spending proposals to the real-world outcomes they seek to achieve, and delivering value for money for taxpayers.
The policy changes set out in the Budget, including the spending totals that have been set for the CSR, have been delivered while ensuring the current budget is in surplus, public sector net investment does not exceed 3% of GDP and debt is kept under control.
HM Treasury will review the fiscal framework ahead of Autumn Budget 2020 to ensure it remains appropriate for the macroeconomic context, while ensuring the sustainability of the public finances.
Responding to COVID-19
Public safety is the government’s top priority in its response to COVID-19 and it is taking firm and comprehensive action, consistent with the best scientific evidence.
As well as being focused on safety and the public health response to the outbreak, the government recognises that people will be concerned about the effect it will have on their livelihood, and business will be concerned about reduced demand, potential disruptions to supply chains and export markets, and to their workforce during this temporary period.
The Budget announces a £12 billion plan to provide support for public services, individuals and businesses, whose finances are affected by COVID-19. This includes a £5 billion COVID-19 response fund to ensure the NHS and other public services receive the funding they need to respond to the outbreak as the situation develops, and recover and return to normal afterwards.
For individuals it includes extending Statutory Sick Pay (SSP) for those advised to self-isolate, and those caring for others who self-isolate, and support through the welfare system for those who cannot claim SSP, as well as a hardship fund.
Finally, the government will support businesses that experience increased costs or disruptions to their cashflow. This includes expanded Business Rates reliefs, a Coronavirus Business Interruption Loan Scheme to support up to a further £1 billion lending to SMEs, a £2.2 billion grant scheme for small businesses, and a dedicated helpline for those who need a deferral period on their tax liabilities.
Tackling COVID-19 is a global challenge, and to complement our domestic response the Budget sets out steps the UK is taking to lead a swift and effective global response to deal with the impacts of the virus.
The measures set out in the Budget to support health and other public services, protect people and families and support businesses will be reflected in the public finances at Autumn Budget 2020.
Funding excellent public services
The people of the UK are rightly proud of its world-class public services. The NHS, schools and police provide the security and support that allow the British people to lead safe, prosperous and healthy lives. The government is committed to providing the funding that public services need and ensuring that excellent services are available in every nation and region of the UK.
Total departmental spending is set to grow twice as fast as the economy over the CSR period. Day-to-day departmental spending is set to grow at the fastest rate over a spending review period since Spending Review 2004.
Within this, the government will increase funding for its number one spending priority: the NHS. Compared to 2018-19, NHS England will receive a cash increase of £34 billion a year by 2024. In addition, the Budget commits over £6 billion of new funding over this Parliament, including to create 50 million more GP surgery appointments per year, ensure there are 50,000 more nurses, and fund wider commitments on hospital car parking and support for people with learning disabilities and autism. The Budget also sets out action to ensure that pensions tax rules do not deter doctors from taking on additional shifts.
The government will invest in the security of everyone in the UK with additional funding for counter-terrorism policing and the UK intelligence community. The government will keep people safe with strengthened community sentences and increased victim support.
Spending Round 2019 committed to a £7.1 billion cash increase in funding for schools by 2022-23. The Budget builds on this by providing £29 million per year by 2023-24 to support primary school PE teaching and help schools make the best use of their sports facilities, as well as £90 million per year to introduce an Arts Premium from September 2021 to help schools provide high-quality arts programmes and extracurricular activities for pupils.
Levelling up and getting Britain building
The government is committed to levelling up across the UK by raising productivity and growth in all nations and regions, creating opportunity for everyone, and addressing disparities in economic and social outcomes.
For too long the UK has under-invested in infrastructure, leaving many people stuck with delays and poor service.
By the end of the parliament, public sector net investment will be triple the average over the last 40 years in real terms. In total, around £640 billion of gross capital investment will be provided for roads, railways, communications, schools, hospitals and power networks across the UK by 2024-25. The government will publish a National Infrastructure Strategy later in the spring, and the CSR will provide full departmental spending plans. The Budget announces:
- the largest ever investment in English strategic roads, with over £27 billion between 2020 and 2025, enough funding to fill in around 50 million potholes across the country, and unprecedented investment in urban transport, with £4.2 billion for five-year, integrated transport settlements for eight city regions on top of £1 billion allocated to shovel-ready transport schemes
- funding for the Shared Rural Network agreement to radically improve mobile coverage in rural areas, and a record £5 billion investment in gigabit broadband rollout in the hardest-to-reach areas of England, Scotland, Wales and Northern Ireland
- record funding of £5.2 billion for flood defences between 2021 and 2027, offering better protection from flooding for 336,000 homes and non-residential properties. Additional funding of £200 million will help communities most at risk of flooding recover faster in cases where they are affected by flood damage
- a £10.9 billion increase in housing investment to support the commitment to build at least 1 million new homes by the end of the Parliament, and an average of 300,000 homes a year by the mid-2020s
- the government will invest £1.5 billion (£1.8 billion including indicative Barnett consequentials) over five years in capital spending to refurbish further education colleges, and has committed to a new £2.5 billion National Skills Fund to improve adult skills (£3 billion including indicative Barnett consequentials). It will also boost science, technology, engineering and maths teaching with capital investment for up to eight new Institutes of Technology and 11 maths schools. The government is committed to giving everyone the opportunity to fulfil their potential, regardless of where they are from.
The government is also taking action to review the Green Book, which sets out how decisions on major investment programmes are appraised in order to make sure that government investment spreads opportunity across the UK.
The Budget reaffirms the government’s commitment to strengthening the ties that bind the Union. As well as taking action that will support people and businesses in every nation of the UK, and targeted support to each nation, it sets out the funding the government will make available through Barnett consequentials for the devolved administrations to fund public services, infrastructure and other priorities.