The UK government has allocated billions to coronavirus-related spending and infrastructure projects, in a bid to keep the economy moving as growth projections for 2020 fall to 1.1%.
Giving his first Budget on Thursday, chancellor Rishi Sunak – who replaced Sajid Javid in PM Boris Johnson’s reshuffle just four weeks ago – announced coronavirus spending of around £12bn (US$15.3bn), plus a total of £600bn (US$765bn) for roads, rail, housing and broadband infrastructure schemes. The response to coronavirus includes £5bn (US$6.4bn) for the NHS, and a mixture of benefits and tax changes designed to support small businesses and the self-employed. The government will cover the cost of sick pay for small businesses, for example, and has announced a business rates holiday for those operating in retail, hospitality and leisure sectors.
The chancellor also signalled a 2.8% real terms boost for Whitehall departments’ operational budgets – though most of this is likely to go to the NHS, police and schools, leaving the majority of departments with minimal rises – alongside capital budget growth of 6.9% over five years. Details will emerge in the Comprehensive Spending Review (CSR) planned for this autumn, which will also firm up plans for a ‘Public Value Framework’ (PVF).
The PVF will, the government says, “establish a new approach to link departments’ spending proposals to the outcomes they intend to achieve”, and is designed to ensure that “increased government funding leads to real-world improvements that make a difference to people’s lives.” The approach builds on work by former Number 10 Delivery Unit head Sir Michael Barber – and, further back, on the Public Spending Agreements used by Labour chancellor Gordon Brown to tie funding allocations to service delivery during the early 2000s.
Meanwhile, the Budget allocated £46m (US$59m) to a Shared Outcomes Fund designed to provide “improved support to individuals overcoming multiple complex needs, such as homelessness, reoffending and substance misuse.” The money is intended to support cross-departmental service provision.
As part of its agenda to ‘level up’ the North of England, the Budget also set out the government’s ambition to “relocate a minimum of 22,000 civil service roles out of central London” via the Cabinet Office’s Places for Growth Programme. The Treasury intends to set up offices in Northern Ireland and Wales, and to create “a new economic decision-making policy campus” with other departments in the North.
The government’s additional spending commitments, according to independent evaluator the Office for Budget Responsibility (OBR), will raise the UK’s public finance deficit by 0.9 points over five years – adding £125bn (US$159bn) to the public debt by 2024-25. In 2020-21 the deficit will stand at 2.4% of GDP, and the government intends to borrow up to £60bn per annum over the coming years – twice its projection of just a year ago.
In its analysis, the OBR said that the UK economy is about 2% smaller than it would have been had the 2016 EU referendum not backed a withdrawal from the EU – with much of the loss due to “weaker productivity growth on the back of depressed business investment and the diversion of resources from production towards preparing for potential Brexit outcomes.” Noting that the OBR’s anticipated 20% rise in business investment 2016-2020 has almost entirely evaporated since the referendum, the report predicts that Brexit is likely to cause a further hit to productivity totalling about twice the damage incurred to date – assuming that the government secures an “orderly move to a new trading arrangement”.
Access to cash
In a move designed to address worries that the UK is in danger of “sleepwalking into a cashless society, leaving millions behind” – as last year’s Access to Cash Review found – the Budget also promises measures to ensure that everyone can continue to access cash. The government will “bring forward legislation to protect access to cash and ensure that the UK’s cash infrastructure is sustainable in the long-term,” the Budget said in a section on ‘Supporting the most vulnerable’
The announcement comes weeks after the Access to Cash Review panel published a one-year update saying that cash use in the UK had fallen even faster than it had forecast, arguing that the UK’s cash system has “reached a tipping-point”, and warning that it “will collapse without legislation”. Discussions on how to proceed will include the Bank of England, the Financial Conduct Authority and the Payment Systems Regulator, as well as industry, while the Treasury will examine how other countries have intervened to save cash, including Sweden, according to the Financial Times.
Natalie Ceeney CBE, the independent chair of the Access to Cash Review and former head of the UK’s Financial Ombudsman Service, told Global Government Forum in the wake of the Budget announcement: “The commitment to legislate to maintain a viable cash infrastructure is hugely welcome.”
Lessons from overseas
In November the Swedish Riksdag adopted legislation under which certain large credit institutions – currently the six largest banks in Sweden – will be obliged to provide certain cash services throughout Sweden from 1 January 2021. The purpose is to ensure a certain minimum level of access to cash services for consumers and companies.
Ceeney told Global Government Forum: “In terms of possible models, the legislation introduced by Sweden to deal with their own cash sustainability issues would be a good starting point. The Swedish legislation places a legal responsibility on major retail banks to ensure that first, their retail customers have suitable access to cash, and second, that their SME customers have suitable deposit facilities. It’s then up to regulators to define what ‘suitable’ means, allowing flexibility as the situation changes. Being channel-neutral encourages innovation – and in the UK’s case would encourage cashback and other models to supplement ATMs.”
Ceeney added: “What’s clear is that we don’t have a lot of time. Our cash infrastructure is under serious strain, and action is needed now. Working to find a perfect solution would be unhelpful, as cash use and provision is changing quickly. Instead, the imperative is to create a working framework quickly that regulators can then hone and flex.”