Spending Review: The impact for business

  • 25 Nov 2020

“A government which claims to be pro-enterprise had very little to say about the importance of business and private sector job creation,” declared Mike Cherry, National Chairman of Federation of Small Businesses (FSB), responding to Chancellor Rishi Sunak’s Spending Review.

In the November spending review, the Chancellor Rishi Sunak revealed the economy is set to contract by 11.3%, the largest fall in over 300 years

While Sunak said figures from the Office for Budget Responsibility (OBR) indicated that the economy is predicted to grow by 5.5% next year, he warned that economic output will not return to pre-crisis levels until Q4 2022.

 

But FSB was left disappointed by the lack of targeted help for the UK’s battered business sector in the chancellor’s statement, and called for a pro-business response in the Spring 2021 Budget.

Mr Cherry said: “This Spending Review was a missed opportunity to help small business owners – not least those who have been excluded from support measures – and brings the need for a pro-business Spring Budget into focus. Rather than being a tax-raising Budget, it must have growth and recovery at its heart.

“Depending on the spread of Covid and restrictions over the coming months, very significant interventions may well be needed far sooner than the Spring. We will at least need to see meaningful action to spur business and job creation by the time the furlough scheme is reviewed in January.”

The Chancellor described his priorities:

1. protecting people’s lives and livelihoods;

2. providing strong public services;

3. making a ‘once in a generation’ investment in infrastructure.

He outlined up to £3bn for the Department for Work and Pensions to launch a new three-year restart program to help 1m people who have been unemployed for over a year to find new work.

 

However, Sunak said unemployment is still expected to peak in Q2 2021 at 7.5% or 2.6m people, before falling to 4.4% by the end of 2024.

The investment in infrastructure includes £7.1bn for housebuilding; faster broadband to five million premises, and 4G for 95% of the country by 2025, as well as spending on new roads, upgrading railways and cycle lanes.

There will also be a new UK infrastructure bank headquartered in the North of England which will work with the private sector to finance new investment projects, starting next Spring.

The Chancellor also announced a new ‘levelling up’ fund of £4bn to make it possible for any local area to bid directly to fund local projects. To qualify, projects must have real impact, be delivered during this Parliament and have local support.

Mike Cherry said: “The economic forecasts outlined today are stark. Our hopes of recovery will hinge on the success of small businesses. We need to see far more from this Government where reducing tax on enterprise, facilitating start-ups and bringing down operating and employment costs are concerned.

 

“That said, commitments to a new UK infrastructure Bank, Levelling Up Fund and UK Shared Prosperity Fund are good to see. We’ve always said that replacing EU funding for business support would be critical as we move to a new relationship with Europe, and our recommendations have been taken on board.

“It’s vital that – as these new initiatives are rolled out – small firms are brought into the supply chains of capital expenditure projects and paid on time.

“The announcement of measures to aid the sharing of apprenticeship levy funds with small firms down supply chains marks an important step forward.

“For too long, our transport, broadband and mobile infrastructure has lagged behind other major economies. We welcome efforts to tackle this issue head on.     

“The Government has listened to the expert Low Pay Commission where the National Living Wage is concerned, and that marks the right approach. 

 

“We’ve heard an awful lot about government debt today. We should also remember that previously thriving small firms have had to take on significant borrowing to keep the show on the road and pay for safety measures. Come the Spring, when repayments start to fall due, many will be extremely stretched. A pro-business Budget at that juncture will not just be important, but essential.” 

 

Related topics