What does the spending review mean for your finances?

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·4 min read

WATCH: Economic damage from COVID-19 pandemic likely to be lasting – Rishi Sunak

UK chancellor Rishi Sunak delivered the government’s 12-month spending review on Wednesday, detailing a bleak outlook for the UK economy and reaffirming his commitment to protect as many jobs as possible.

The spending review is usually an opportunity for the government to set departmental budgets but Sunak used the occasion like a mini-budget, announcing a series of spending pledges on everything from infrastructure to police.

Several of the measures announced will have an effect on people’s lives, livelihoods, and finances.

Here’s how the announcement could affect you:

Public sector workers: Pay rise for lowest paid but freeze for everyone else

Press reports ahead of Wednesday’s announcement suggested Sunak could announce a pay freeze across the public sector as part of efforts to try and bring public finances back under control. In the event, the chancellor opted for more “targeted” measures.

Sunak said public sector pay would be frozen next year but exempted NHS workers and those earning below the median UK wage of £24,000. Their wages will rise by at least £250 next year.

“I cannot justify a significant, across the board pay increase for all public sector workers,” the chancellor said.

“While the government is making the difficult decision to control public sector pay, the majority of public sector workers will see their wages increase next year.”

Low income workers: A rise in minimum wage

Low income workers are set for a pay rise next year. The chancellor accepted the recommendations of the Low Pay Commission that the UK’s minimum legal wage — now known as the ‘national living wage’ — should rise to £8.91 an hour in 2021.

The hike amounts to a 2.2% pay rise next year. The legal wage floor will also be extended to cover all workers over the age of 23. The national living wage currently only applies to workers over the age of 25.

Business-owners: Tax break on business properties

Sunak said the business rates multiplier — which is used to calculate how much tax business-owners must pay on commercial properties — would be suspended next year. The Treasury said the tax break would save businesses in England £575m ($767m) over the next five years.

Britain's chancellor of the exchequer Rishi Sunak leaves Downing Street, in London, before announcing the Spending Review in the parliament on 25 November. Photo: Simon Dawson/Reuters
Britain's chancellor of the exchequer Rishi Sunak leaves Downing Street, in London, before announcing the Spending Review in the parliament on 25 November. Photo: Simon Dawson/Reuters

Low income parents: Free school meals funding

Manchester United footballer Marcus Rashford has twice forced the government to U-turn and provide free school meals to low income kids during school holidays. The government appear keen to avoid a third U-turn — the spending review included funding for free school meals for poor children during the Easter, summer and Christmas holidays next year. The funding is part of a £1.4bn package of education spending announced by the chancellor.

Unemployed: Billions more to get back into work

One of the flagship spending announcements covered jobs. Forecasts released alongside the spending review predicted a large rise in unemployment next year, peaking at over 2.5 million.

Sunak announced a new £3bn “Restart” programme to help the unemployed back into work. An additional £1.6bn is to be funnelled to Job Centres to help them increase their capacity in anticipation of a big jump in demand next year.

Young people: More money for Kickstarter scheme

The chancellor announced the creation of the Kickstarter scheme as part of his summer economic update. The scheme funded six-week work placements for young people to help them get their their first taste of the world of work. It came amid fears that COVID-19 could leave a generation struggling to enter employment.

Sunak said on Wednesday that the programme would get an additional £1.6bn in funding. Earlier this month the Treasury said 19,000 jobs had so far been created through the scheme.

WATCH: Chancellor freezes public sector pay and cuts foreign aid

Second-home owners, pensioners, and investors: Door open for tax rises

Speculation has been mounting that the chancellor is planning a tax raid on second home owners, pensioners, and investors through increases to capital gains tax and changes to higher-rate pension tax relief.

The spending review was not a full budget and so did not contain any announcements on taxation. However, Sunak left the door open for tax rises as he signalled that public finances would have to be addressed at some point.

“We have a responsibility, once the economy recovers, to return to a sustainable fiscal position,” the chancellor said.

The Office for Budget Responsibility said it did not see the government balancing books over the next five years and projected a £27bn hole in the budget that would need to be plugged through either higher taxes or lower spending.

Watch: What is a budget deficit and why does it matter?