Spending Review 2020: what does it mean for businesses?
Today Rishi Sunak confirmed some sobering figures in the Treasury’s 2020 Spending Review. During his speech, the Chancellor described the ‘economic emergency’ the country is facing, with the biggest shrinkage our economy has seen in over 300 years.
The Office for Budget Responsibility has forecast that the economy will decrease by 11.3%. On top of that, borrowing is rising to £394 billion – a peacetime record and 19% of GDP. However, Sunak used the opportunity to lay out plans for recovery beyond coronavirus. This will happen through investment in infrastructure, jobs and public services. Businesses have received a significant boost though the Chancellor’s previous schemes, and the help isn’t drying up yet.
Typically, a spending review covers three or four years, but this one has been set for just 12 months. At the moment it’s too difficult to accurately predict where we'll be beyond that, and what our priorities will be. For now, though, public health and keeping people in viable jobs is the government’s main concern.
£280 billion has gone towards getting the country through coronavirus this year, with a further £55 billion earmarked for next year. £18 billion alone will be spent on PPE, testing and vaccines, with an extra £3 billion going towards supporting NHS recovery. This spending is part of making sure we continue our fight against coronavirus.
With furlough being extended to the end of March, jobs in sectors particuarly hard hit by coronavirus are being protected. In his speech, the Chancellor announced that a further £3 billion is going into a new three-year "Restart Programme". The idea is to help those who've been unemployed for more than a year get a job. Although unemployment is predicted to peak at 7.5% in the second quarter of next year, the Treasury has forecast a drop to 4.4% at the end of 2024.
The Treasury has set out plans for funding improvements in schools, hospitals and safer streets. Infrastructure was a key focus throughout the speech, which Rishi Sunak emphasised as being key to long-term recovery. He announced plans to establish a brand new UK infrastructure bank in the North. It will work with the private sector to finance new projects across the UK.
The government is creating a thorough national infrastructure policy. There will be a major drive in spending to improve transport links, housing and a greener future with zero-emissions buses and more. Investing £100 billion in these improvements will help create jobs to stimulate the economy as well as fund the things that people need and want in their communities.
There will also be a “levelling up” fund worth £4 billion which local areas will be able to bid for funding from. The idea with all these initiatives is to improve the infrastructure across the UK at a local level, making sure changes are genuine improvements to villages, towns and cities.
Through the furlough scheme, tax deferrals, business rate relief, as well as general and sector-specific grants, businesses have received substantial help from the government. The Bounce Bank Loan and Coronavirus Business Interruption Loan Schemes have provided almost £66 billion to businesses across the country. The government has confirmed its commitment to cover fees and interest on CBILS facilities for the first 12 months, which look set to total £512 million. As a reminder, the CBILS scheme was extended to the end of January, so there's still time to make the most of these government-backed facilities.
Around one million businesses have also received over £11.6 billion worth of grants through various government schemes. These included the Small Business Grant Fund, the Retail, Hospitality and Leisure Grant Fund, as well as the Local Authority Discretionary Grant Fund. Although they closed at the end of August, the government has announced the Local Restriction Support Grant Scheme to help businesses that are facing reduced demand or legal closure due to coronavirus. Local authorities have already received £1.1 billion to distribute to businesses in need.
The Treasury is committed to helping businesses grow through these uncertain times. It has announced that an additional £56.5 million will be spent to support entrepreneurs and small businesses in 2021-22. These funds are being given to the British Business Bank to expand their Start Up Loans. The BBB has seen an increase in demand from entrepreneurs to start and grow their businesses, so if that’s you then don’t miss out.
The Treasury has also confirmed it will be freezing business rates multipliers in 2021-22 which will save businesses in England £575 million over the next five years. We’ll have to wait until the New Year to hear what further business relief the government announces. But currently it seems likely that business rates reliefs will stick around for much longer as a key part of the support.
The slump in output this year has spelled disaster for the country’s economic balance sheet. Ultimately, the effects of coronavirus meant that government spending and tax holidays were a necessary remedy. The Chancellor announced that we’ll be waiting until the end of 2022 for output to return to pre-crisis levels.
Although the economic damage will be lasting, Rishi Sunak ended his speech on a positive note: “Good jobs are the most rewarding and sustainable path to prosperity”. After protecting public health, his emphasis is clearly on protecting and boosting businesses.
For more information and advice on weathering the current storm, including which support schemes can be combined, head to our COVID-19 Impact Support Hub.