There will be some choice goodies for voters in next Wednesday’s spending round, of that we can be almost certain.
Whether the current Brexit crisis leads to a general election this side of Christmas or not, Prime Minister Boris Johnson’s announcements to date suggest he is in a generous mood when it comes to popular public services like the NHS and police.
This Spending Review will only cover one year, not the usual three, offering him scope to throw money at some fast-turnaround pet projects as well as revealing longer-term public investment intentions.
Generous helpings all round: Boris Johnson is likely to butter up voters with some choice goodies in next Wednesday’s Spending Review
That said, how much money Chancellor Sajid Javid actually has to play with over the next year hinges on the outcome of Brexit.
But we are also due a Budget soon and given it is meant to cover one year too, that will allow for some course correction by Javid if necessary.
Spending Reviews are meant to focus on departmental matters, but there are likely to be some broad hints of what might be in the Budget, for which no date is set as yet. We round up what to expect next week below.
What will be in the Spending Review?
Education, health and policing budgets
The cash taps will be turned on for big spending departments where the Johnson Government has touted new voter-friendly policies – more police, and boosts for schools and hospitals.
The Prime Minister has already unveiled plans to recruit 20,000 new police officers, create 10,000 extra prison places, and spend £2.5 billion to improve prisons.
He’s also announced a one-off cash injection of £1.8billion for the NHS, some of it earmarked for hospital repairs.
Parents are another group the Tories are keen to woo. And amid some unfriendly headlines of late about schools closing at midday on Fridays – a major headache for working parents – it’s likely more money will be found to ease their budgets.
The Prime Minister has signalled a desire to hike the higher rate tax threshold from £50,000 to £80,000 – a massive giveaway for the better off.
He’s also talked about reviewing the basic rate threshold of £12,500, and raising the level above which people have to pay National Insurance, currently £719 a month or £8,632 a year.
While this Spending Review is primarily concerned with setting departmental budgets for the next 12 months, the allocations will have an impact on possible future tax cuts.
Despite describing himself as ‘a low tax guy’, Chancellor Sajid Javid said ‘anyone expecting a blank cheque will be sorely disappointed’ and that ‘choices’ would need to be made.
Ben Zaranko from the IFS believes it’s possible there will be some tax changes on the side in the Review, but they might have to wait until the Budget.
He added that given the Chancellor’s fiscal rules, like keeping the deficit to less than two per cent of GDP, any more spending announced next week provides less space for tax cuts further down the line. It could give ‘a hint of things to come’ if the Chancellor leaves some room to manoeuvre.
Shunted off: HS2 high speed rail link looks likely to be scrapped
The HS2 high speed rail link looks likely to be scrapped, and the Heathrow third runway will be off the agenda due to its unpopularity with many of Johnson’s constituents – he has a majority of just over 5,000 in Uxbridge and South Ruislip.
But given the Prime Minister’s liking for putting his name on public projects – islands, bridges, bikes, buses – the Government is bound to come up with something eyecatching with voter appeal.
Federation of Small Business national chairman Mike Cherry said: ‘Despite being one of the biggest economies in the world, huge swathes of country face digital exclusion.
‘Sufficient resources need to be dedicated to ensure that small firms have access to the upload and download speeds they are entitled to under the Universal Service Obligation, as well as reliable 4G connectivity.
“Equally, from Heathrow, to Crossrail, to HS2, our stop-start approach to major infrastructure projects has held us back for long enough.’
How will any such schemes be paid for? The Government could look to borrow more, with bond yields so low at present, points out Jason Hollands, managing director of Tilney.
‘For new infrastructure investment, it can borrow money cheaply. It’s the perfect time for governments to issue long term debt very inexpensively,’ he says.
Recent rumours of a major change to stamp duty, to make homesellers rather than buyers pay the tax, were quickly scorched by Javid.
It would have meant all first time buyers, who currently benefit from paying no stamp duty on a first home up to £300,000 and then a reduced rate up to £500,000, no longer paying the tax at all.
However, Javid stated that particular idea was not being considered.
Swift denial: Rumours of a major change to stamp duty, to make homesellers rather than buyers pay the tax, were quickly scotched by Chancellor Sajid Javid
David Hollingworth from mortgage broker L&C said: ‘Stamp duty looks like a potential target for change and there’s already been plenty of speculation around what that could entail.
‘Some have suggested that rather than see downsizers face a bigger bill there’s good reason to offer them relief in an effort to encourage older homeowners still in bigger homes to make the move, freeing up family homes for those further down the chain.’
For those at the other end of the housing ladder, he said: ‘There’s been some conjecture that Boris Johnson was prepared to consider lifting the zero rated threshold to £500,000 for everyone not just first time buyers, which may be to offer support to the property market in the event of a no-deal Brexit.’
Action promised: Boris Johnson has vowed to fix the social care funding crisis
This might be one that waits for the Budget. But given the importance of older voters – they tend to turn out at elections – it’s possible the Chancellor will recommit the Government to the ‘triple lock’.
This means annual rises in the state pension are always decided by whatever is the highest of price inflation, average earnings growth or 2.5 per cent.
It’s unlikely there will be any mention of changes to the state pension age, as the only way is up – not a topic the Government will want to remind voters of right now.
Boris Johnson has vowed to fix the social care funding crisis, both while campaigning and on the steps of Downing Street after becoming Prime Minister.
A promised Green Paper, setting out the Government’s plans and putting them up for public discussion, is long overdue.
The dearth of Government plans has led a House of Lords committee, a former Tory MP and assorted industry players to float their own ideas to overhaul the social care system.
The Lords called for an immediate £8billion-a-year boost for social care, and the launch of universal free personal care by 2025 at a cost of £7billion.
Steven Cameron, pensions director at Aegon said: ‘Repeated delays by the Government to tackle this issue through a promised Green Paper has meant a social care funding solution has been one of the greatest casualties of the Brexit deadlock.
‘The spending round provides an opportunity for the Chancellor to offer some much needed temporary support for local councils struggling to providing care and dignity to a growing number of elderly people, including those living with dementia.’
New plans: Measures to ease the burden of student loans were proposed last Spring
Before she was ousted as Prime Minister, Theresa May commissioned City veteran Philip Augar to consider the cost of higher education, and tuition fees in particular, following an inconvenient announcement by the Office for National Statistics that student loans would now be considered Government spending.
Under Augar’s proposals, issued at the end of May, maximum annual tuition fees would be reduced from £9,250 to £7,500 while interest payments on loans would be cut from the Retail Price Index measure of inflation plus three per cent to just RPI.
The reforms could cost the Government between £300million and £600million.
Though Jake Butler from student money site Save the Student said ‘the Augar report seems to have been swept under the carpet for now’, Ben Zaranko from the Institute for Fiscal Studies said there could be an announcement on student loan interest, though it is still unlikely, and bigger changes will almost certainly come in a future Budget.
But with student loans now included in Government spending, it’s likely it will look to make changes soon, if for no other reason than to keep billions of pounds off its balance sheet.
Housing pressure: The Government is being called on to help first time buyers and downsizers
If you ever need an indication as to how much people hate the ‘death tax’, the Office for Tax Simplification admitted last year that its review received the highest number of responses it had ever had on a tax issue.
It said: ‘Many of those who responded told the OTS that, at what is such a difficult time, they felt they were being asked to fill in complicated forms even where the relative who had died had only left a small amount.’
The OTS announced a raft of proposals following its review, which was commissioned by former Chancellor Phillip Hammond – including ditching an array of rules and replacing them with a single ‘personal gift allowance’.
It’s unclear whether Johnson and Javid will like any of its ideas, but taking shots at the ‘death tax’ is invariably popular so it’s possible the Government could implement at least some of the OTS recommendations, whether that’s next week or at the next Budget – the latter is probably more likely.
Any firm plans to change the ‘annual allowance taper’, a complicated pension tax rule forcing doctors and other high earning public sector workers to slash hours or retire early, might also be postponed until the Budget.
But the topic could get a passing mention, if only to reaffirm the Government is taking it seriously.
‘The area we are most likely to see movement on is the pension tax taper,’ says Tom Selby, senior analyst at AJ Bell.
‘While pension tax policy should be designed for the long-term, the short-term pressures facing UK hospitals require rapid action. Scrapping the taper would be the simplest option, although the Exchequer would need to find around £1billion a year to cover the cost.’
Licence fee: The Government might decide to find some extra cash to end this battle with older voters
BBC licence fee
Axing free TV licences for all but the poorest over-75s has proved massively unpopular, and the Government is under pressure to continue footing the bill rather than shift all funding responsibility to the BBC from next summer.
Johnson has told the BBC to ‘cough up’, but Age UK has urged him to strike a deal with the broadcaster to avoid elderly people being forced to stop watching TV, cut back on essentials like food or heating, or even refuse to pay and face prison.
So, the Government might decide to find some extra cash – perhaps just a temporary funding fix – to avoid a stand-off with older voters and damaging headlines at this juncture.