“It was the best of times, it was the worst of times. It was the spring of hope, it was the winter of despair.” I don’t believe when he was writing in 1859, that Charles Dickens would have known the enduring relevance of his words in 2020. It’s truly remarkable how strongly they resonate with this week’s one-year spending review, which was very much a tale of boom and bust.
The Chancellor’s economic forecast painted a decidedly bleaker picture than that set out in the Spring Budget back in March and stressed the responsibility to return to a sustainable fiscal position. The economy is now expected to contract this year by 11.3%, with growth not expected to return to pre-COVID levels until Q4 of 2022. By 2025, the economy is forecast to be 3% smaller than expected in the March Budget.
Elements of the spending review reflected this outlook, with the implementation of a pay freeze for much of the public sector and cuts to the international aid budget. The picture for local government and social care was also less than ideal. While a 4.5% increase in overall spending power for councils was announced, this will largely be absorbed by costs in social care and the rise to the national minimum wage.
However, there were distinct areas in which the Chancellor was willing to splash the cash. The amount of funding funnelled into infrastructure was indicative of the government’s desire to follow through on their commitments to both the levelling up agenda and the Prime Minister’s ten-point plan for climate change.
The National Infrastructure Plan, which was published alongside the spending review, outlines over £8bn of funding commitments to green infrastructure, including carbon capture and storage, nuclear technologies, flood defences and electric vehicle charging points, as well as a commitment to a number of other green initiatives. It is encouraging that green infrastructure and net-zero are key themes in the National Infrastructure Strategy. However, at the same time, there are plans for £27bn to be spent on roads, illustrating the tension between economic growth and driving down emissions. As a result, it will be increasingly important to track how well additional investment is spent in progressing our net-zero emissions targets to ensure that the committed funding supports a lasting green recovery.
Alongside this sits a £4bn levelling up fund intended for local infrastructure with a visible impact on people, communities and economic recovery.
These plans look great on paper, but strong public financial management will be key to making both net zero and levelling up a reality that achieves value for money.
When it comes to levelling up, making funding available is a good first step, but the risk remains that the system is biased towards those authorities with more resources, a stronger local economy, or a combination of both. Authorities with less capacity and capability will undoubtedly struggle to submit bids as robust as their wealthier neighbours, running the risk of further entrenching the regional inequalities levelling up was designed to address. The amendments to the green book (announced alongside the Spending Review) create a new focus on whether projects deliver against priorities, providing an opportunity to deliver better outcomes for local communities and places. However, this may not be enough to address the issue of the local capacity available to maximise these changes.
The Chancellor was understandably focused on the short-term requirement to respond to the pandemic. While there were some welcome and substantial packages that addressed major projects and challenges, significant questions remain over long-term public sector funding issues. Systemic matters like reform to social care and local government funding reform remain unaddressed. There also remains no strong direction of travel around devolution.
These issues may generate less sexy headlines, but they are no less important. While we can accept a certain amount of short-termism in these areas as we endeavour to recover our economic position, these issues aren’t going away. To ignore them would be to the detriment of vulnerable communities, and at the government’s peril.
This article first appeared in Public Finance.
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