Spending Review 2019 - A Cicero Group Overview

Spending Review 2019 Cicero Group | September 2019

Foreword In more run-of-the-mill political times, a new Chancellor’s first big outing in Parliament would be the landmark moment of the week in Westminster. But in the extraordinary times we are currently living through, it’s debateable whether it was even the landmark moment of the day. And yet the Spending Round announced by Sajid Javid today was highly politically significant.

Readying for an election After a decade of restraint in pubic spending in the aftermath of the financial crisis, the message from Javid was clear: this is “the end of austerity”.

“We must not forget”, Javid said, “that Brexit is not the only thing that matters to the British people.”

If anyone had a lingering doubt about the inevitability of a General Election, this remark should have dispelled it. This is a Government that is putting itself on an election footing and is acutely aware that an election campaign can never be fought on a single issue. Brexit delivery will be a potent issue for sure, but Boris Johnson and his team know they must have a sellable message on public services and the economy as well.

The Shadow Chancellor John McDonnell accused Javid of engaging in “grubby electioneering” and “opinion poll politics”. He is unquestionably right that the looming election was at the forefront of the Chancellor’s mind, but he will also know that this is going to present a challenge to Labour’s strategy. With Johnson, Javid et al loosening the purse strings, the potency of Labour’s attack on ‘out of touch Tories’ may be diminished.

In line with the issues on which the Johnson Government has focused during its first weeks in office, the issues of policing, the NHS and education all featured prominently in Javid’s statement. There was also a big boost for defence spending, and that feels like another election battle line being drawn, as Prime Minister Johnson no doubt prepares to contrast his commitment to the armed forces with that of an opposition leader who the Conservatives consider to be ‘soft’ on national security. cicero-group.com

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Brexit looms large It seems no Government economic statement is complete now without the announcement of more funding for Brexit readiness. This Spending Round ticked that box with a further £2 billion for Brexit preparations next year for border force staff at ports and business readiness.

The Chancellor’s statement has been overshadowed this week by Parliament’s latest efforts to take a nodeal exit off the table. But still the Government sticks to its strategy to try to show Brussels how serious the UK is about leaving without a deal if no alternative deal can be struck by 31 October. This latest spending allocation for Brexit preparedness is another building block of that strategy, but the message in the EU is likely to have been lost amidst the drama of the last 24 hours.

Only the beginning It is important to remember that this was, unusually, only a one-year Spending Round as opposed to the usual multi-year settlement. That means the Chancellor – whether Sajid Javid or someone else – will be back again in a year’s time, by which point the Treasury will hope for a calmer political climate and the opportunity to set out a longer term roadmap for public spending.

Before then, there is also a Budget to deliver later this year, where more detailed announcements will be expected on the Government’s fiscal plans, as well as a new fiscal framework to “meet the economic priorities of today – not of a decade ago”.

There’s no question that we are only at the beginning of a new era in the political and economic history of the UK. But with the Brexit question still unresolved and an election seemingly imminent, it is far from certain what that future might look like, or even who will lead us through it.

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Funding Settlements for Key Departments 14.0% 12.4%

12.4%

12.0%

11.4%

10.0%

8.0% 6.3% 6.0% 4.9% 4.0% 3.1%

3.3%

3.3% 2.7% 2.1%

1.8%

2.0%

0.9% 0.0% Health and Social Care

Education

Home Office

Justice

Law Officers’ Departments

Defence

Housing and Local Communities Government

Transport

Scotland

Business, Energy and Industrial Strategy

Environment, Food and Rural Affairs

The above graph depicts the real terms spending increases in a selection of key Government departments. In recent years we have become accustomed to talking of ‘winners and losers’, but on this occasion, with no department experiencing cuts, it is more a case of ‘big winners and smaller winners’. Particularly striking in this graph is the big spike in local government spending, largely attributable to increased funding for social care, and in transport funding, largely due to infrastructure projects. Although less eye-catching, the increases to the already well-funded Health, Education and Defence budgets are also politically significant and reflect the political priorities of this Government. cicero-group.com

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Key takeaways from the Spending Review End to austerity The Government has announced year-on-year real-term budget increases for the vast majority of Government departments, with no Department receiving budgetary reductions. Overall, the Government has announced a £13.8 billion increase in day-to-day spending from 2019-2020 to 2020-2021. Despite his fiscally-cautious nature, the Chancellor has seemed determined to demonstrate that the Government is willing to make substantial departmental investments.

Brexit With Brexit clearly dominating the headlines, a further £2 billion will be provided for Brexit delivery for 2020-2021. In the context of the looming Brexit deadline, this announcement reaffirmed the Government’s commitment to withdraw from the EU by the 31 October 2019.

Home Office One of the most eye-catching policies the Chancellor announced was a 6.3% real-terms increase in the Home Office budget. This was to help fund a £750 million investment in the first year plan to recruit 20,000 new police officers.

Transport Reinforcing the Government’s commitment to invest heavily in future UK infrastructure, the Chancellor announced an 11.4% real growth increase for the transport budget – one of the largest announced in the Spending Review.

Defence As one of the departments which Conservative MPs had been the most keen to see an increase in investment, the Chancellor confirmed an additional £2.2 billion of funding for the defence budget – translating to a real terms increase of 2.6% for the budget next year.

Social Care As one of the areas receiving the largest increase in Government investment, the Chancellor announced £1.5 billion additional funding for social care, as part of a 12.4% increase in the local government budget.

Green Funding The Chancellor announced a range of pro-environment policies including £432 million of funding to maintain environment standards post-Brexit and £30 million to tackle the crisis in air quality. The Chancellor further announced £30 million of funding to develop schemes to assist the UK in reaching its net-zero carbon commitment by 2050.

Education The Chancellor reaffirmed the Government’s pledge to increase school spending by £7.1 billion by 202223. cicero-group.com

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For further analysis: Cicero Group conference call Cicero Group is delighted to invite you to join a conference call discussing the significance of Tuesday’s government defeat, the impact on Brexit, and whether the UK will now face an imminent General Election. We will also hear from Cicero’s teams in Brussels and Dublin for their ‘on the ground’ perspectives, before answering questions from our audience.

Please click here to register for this session. Full details can be found below: Speakers: Joey Jones, Former Spokesperson to Theresa May & Strategic Counsel, Cicero Group; Aideen Ginnell, Ireland Director, Cicero Group; Robert Langmuir, Account Director (EU), Cicero Group Date: Thursday 5 September Time: 10:30 - 11:00AM (BST)

Get in touch If you would like to speak to the Cicero team about this report, or how we can help support your organisation and its public affairs objectives in 2019, please contact a member of the team below: Simon Fitzpatrick Account Director Simon.Fitzpatrick@cicero-group.com +44 (0)20 7947 5314

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Omar Rana Senior Account Executive Omar.Rana@cicero-group.com +44 (0)20 7297 5962

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