Yesterday was Rishi Sunak’s first Spending Review; a major milestone for any Chancellor, but this one came at a time like no other. This was a point not missed by the drafting team inside of the Treasury who had used the term “unprecedented” 18 times throughout the Blue Book which unpacks the detail of the announcements.

Sunak started his speech by outlining his three priorities. The first, and most immediate, was to protect people’s lives and livelihoods. Secondly, to deliver stronger public services. Thirdly, to deliver a once-in-a-generation investment in infrastructure, which he said would create “jobs, growing the economy, increasing pride in the places we call home.”

This year’s spending review was slightly more mooted then previous editions; with new OBR forecasts laying out the impact of the Covid-19 on the UK economy, as well as being delivered in front of a socially distanced parliament. But there will be much to cheer for backbenchers, particularly in the ‘red wall’ region with the continued focus on “levelling up” the UK economy. This included a £2.5bn investment in the transport networks of 8 city regions across England, while a new UK Infrastructure Bank in the north of England will work with the private sector to finance new major projects from next Spring. There is also going to be a £4bn levelling up fund managed jointly by the Treasury, Department for Transport and the Ministry of Housing, Communities and Local Government.

The newspaper headlines are likely to be taken by the Government’s decision to cut the UK’s overseas aid budget from 0.7% of gross national income on aid to 0.5% (N.B. be sure to recognise it is % of GNI and not GDP!). This is a sign of the Chancellor’s intent to cut spending, albeit abroad rather than at home. However, the aid target is written into law so the Government will need to pass new legislation to change course. The level of opposition to the announcement from across the House could also test Government’s 80 seat majority with a ministerial resignation already occurring with the first 24 hours.

The Chancellor’s speech is also the first time we get a sense of what domestic policymaking could look like beyond the pandemic. For those who have followed the rhetoric of the government since the last election, his spending choices come as little surprise.  Throughout the speech, we were able to tick off the list of spending commitments. The Ministry of Defence emerged as one of the big winners, securing an additional £16.5bn over four years, with education, health, prisons and the police also seeing new investment.

As ever it is also important to chart those departments absent from the Chancellor’s list of beneficiaries, like the FCO and BEIS that are clearly out of focus and favour for the Treasury at the moment. There was also no mention in the speech about universal credit, but the decision not to extend the emergency £20 increase in Universal Credit beyond March next year (which was buried in the blue book) is likely to draw political heat as the debates more forward.

There were, of course, multiple other announcements, but those that should catch the eye (even if the media may gloss over them) include:

• The Government committing to produce an overarching policy paper on economic regulation in 2021, which will consider regulator duties, and how to inject more competition into strategic investments.
• Confirmation that the Government will stop using the Retail Prices Index (RPI) to measure inflation in 2030. This is a move that saves billions for the taxpayer but will cut pay-outs to some pensioners and bondholders.
• The OBR is still forecasting an “orderly transition” to a trade deal between the UK and the EU.  It warned that if the UK came out of the transition period on December 31 without a new deal with Brussels, GDP would take a further 2% hit in the second quarter of 2021, and continue to be 1.5% lower until 2024.

The Government continues to receive a lot of help from the Bank of England with the decision to keep interest rates so low. Borrowing is expected to reach £394bn for the current fiscal year and, while this puts the debt levels at their highest since the 1950s, the cost of servicing that debt (i.e., covering repayments) has never been lower.

Sunak is moving into a new phase of his Chancellorship. He is starting to come under increasing pressure to balance the needs of an economy, while also feeling the heat from his own Conservative colleagues on the need to balance the books.

So far, he has only gone as far as signalling that tax rises or spending cuts would be needed to bring down the national debt and avoids any mention of austerity – a term deeply out of favour with the British public and the general direction of the international response to the pandemic. So, for now, his role as a hoodie-wearing Father Christmas continues, with the spending tabs remaining on for the chosen programmes while we all battle through the ongoing the pandemic.