The Chancellor’s Spending Review 2020


Susie Walker

Susie Walker

Partner and Head of Tax and Brexit Team

27 November 2020


    Bereft of an Autumn Budget, Chancellor Rishi Sunak presented a short-term Spending Review 2020 to Parliament on Wednesday 25 November. The focus was to emphasise the balance necessary to continue the UK’s response to COVID-19 (which to date has cost more than £280 billion) and to invest heavily in the UK’s recovery in order to boost employment and encourage innovation across the UK as we prepare for the end of the Brexit transition period to end.

    The main headlines from the Spending Review

    Next year the Government will invest £100 billion of capital spend to kickstart growth and support jobs, incur targeted investment to deliver a green industrial revolution, tackle climate change and support hundreds of thousands of jobs. Initiatives will include nuclear projects, up to 10 freeports (at least one guaranteed to be in Scotland) and improved mobile phone reception. The Government will also increase funding for the devolved administrations through the Barnett Formula providing an additional £2.4bn for the Scottish Government and accelerate four City and Growth Deals in Scotland, helping Tay Cities, Borderlands, Moray and the Scottish Islands create jobs and prosperity in their areas. In addition to this, the Chancellor also announced that public sector pay rises would be controlled, and that the Government will invest £15bn towards R&D next year, along with over £1 billion to support farmers, land managers and the rural economy; plus funding to support fisheries in Scotland, Wales and Northern Ireland. The list goes on!

    Just two tax announcements

    With a backdrop of the Office of Budget Responsibility’s forecast for GDP to shrink by 11.3% in 2020, the largest annual fall since the Great Frost of 1709, we expected some significant tax announcements. Not yet was the reality, with only two announcements. Firstly, that funding will be set aside for HMRC’s Making Tax Digital transformation to be expanded for those businesses below the VAT threshold and for self-assessment businesses and landlords with income over £10,000. This is expected to reap £0.7 billion extra tax by 2026 and will mean extra administration and spend on software for many of our smallest businesses, from holiday lets to joiners. Secondly, the Chancellor announced that the income tax personal allowance for 2021-22 and Higher Rate Threshold will increase in line with September CPI and this will also be the reference point for setting National Insurance limits and rates for class 2 and 3 for 2021/22.

    The National Living Wage will increase in April 2021, for aged 23 and over to £8.91/hour from £8.72/ hour, with increases at each age threshold below that.

    Time will tell what tax rises will be applied in order to fund the spending, but for now the Government’s aim is to get through the crisis and protect as many jobs as possible.