Economic Perspectives –

The Spending Review: expected to follow through on the “levelling up” agenda

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


23rd November 2020


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the 2020 Spending Review:

  • The 2020 Spending Review is due on 25 November and will primarily, though not exclusively, be concerned with the departmental resources and capital budgets for FY2021.
  • The Chancellor is expected to explain how his public spending plans will reflect the Government’s “levelling up” agenda (to support the North of England and other regions outside the London and the South East) and the “green” revolution as recently announced by the Prime Minister.
  • The long-delayed National Infrastructure Strategy will accompany the Spending Review and is expected to cover flagship programmes such as fibre broadband, flood defences, and major transport schemes.
  • The Spending Review will be accompanied by an updated economic forecast by the Office for Budget Responsibility (OBR). Of key interest will be the revisions to the forecast compiled for the Fiscal Sustainability Report in July 2020.  
  • The OBR’s central scenario in July was pessimistic. It projected a fall of GDP of 12.4% in 2020, with a bounce back of 8.7% in 2021, with unemployment rising to 8.8% in 2020 and 10.1% in 2021 before subsiding. Even though growth has disappointed recently, the OBR may, if anything, ameliorate their economic forecasts.
  • Similarly, their central scenario fiscal forecasts were pessimistic. Public Sector Net Borrowing (PSNB) was forecast to be £372bn in FY2020 (including the Summer Economic Update measures), £154bn in FY2021 and £132bn in FY2022. There are some expectations that the OBR may raise projected borrowing for FY2020 to around £400bn, given the extra support measures announced by the Chancellor since July, even though borrowing has fallen behind the OBR’s monthly projections so far for FY2020 (April-October).  

UK economic data update:

  • The PSNB in the first seven months of FY2020 (April-October 2020) was £214.9bn, compared with £45.8bn in the same period last year, the highest borrowing in any April-October period on record.
  • Over this period, total taxes fell by £36.0bn (11.5%, YOY), partly reflecting tax holidays (for example on stamp duty) and partly reflecting the hit on tax receipts arising from the weak economic performance.
  • By contrast CG current spending exploded by £123.5bn (28.5%, YOY), of which there was a £63.3bn increase in subsidies, including the furlough schemes.
  • Public sector net debt (excluding public sector banks, PSND ex) at end-October 2020 was £2,076.8bn (100.8% of GDP), compared with £1,793.0bn (81.8%) at the same point last year. The debt to GDP ratios in recent months have reached levels last seen in the early 1960s.
  • Retail sales rose 1.2% (MOM) in October, possibly boosted by early Christmas shopping, to be 6.7% higher than in February. The proportion of online sales was at 28.5% in October.
  • Consumer Prices Index (CPI) YOY rate rose to a modest 0.7% in October, compared with September’s 0.5%, well below the Bank’s 2% inflation target.
  • Producer prices inflation is well contained, benefiting from weak oil prices.
  • According to the ONS, house prices were at a record high in September. They rose 1.8% (MOM), to be 4.7% higher YOY.

Ruth Lea said “The Spending Review will be more than usually interesting. The Chancellor said in October that it would prioritise the response to Covid-19 and focus on supporting jobs, when setting departmental resources and capital budgets for FY2021. In addition, the Chancellor is expected to explain how his spending plans will promote the politically significant “levelling up” agenda, specifically helping the North and the other regions outside London and the South East. And he will probably enlarge on the spending implications of the Prime Minister’s politically sensitive “green” revolution. Concerning the OBR’s forecasts, the focus will  be on public sector borrowing and how much “worse” it is expected to be than in July, when the projections were, even then, pessimistic.”





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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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