On 25 November 2020, The Chancellor of the Exchequer delivered his Spending Review against the back-drop of the ongoing COVID-19 pandemic.
Jason Varney, a partner in the corporate and commercial team gives his view on the review below:
“Given how eagerly anticipated the Chancellor’s Spending Review statement was, many may have been surprised by Mr Sunak’s initial pessimistic comments: “the health emergency is not yet over…and the economic emergency has only just begun”.
“The Chancellor went on to detail this bleak outlook by explaining that the total spending so far on Covid-19 has amounted to £280 billion, with expected borrowing this year to be in the region of £394 billion. If this was not enough, Mr Sunak then went on to outline the Office for Budget Responsibility’s forecast that the UK economy will contract this year by 11.3% - being the “largest fall in output for more than 300 years”. It is expected that the UK economic output will not return to pre-crisis levels until the fourth quarter of 2022 at the earliest and unemployment is predicated to rise to 7.5% (or 2.6 million people) in the second quarter of 2021.
“However, despite the gloomy tone of the statement, Mr Sunak did provide some limited good news – namely the announcement of a new UK infrastructure bank which will finance infrastructure projects from next spring (alongside the private sector) and a UK “levelling up” fund worth £4 billion, which local councils will be able to access to fund local projects.
“As expected given the nature of the Spending Review statement, the Chancellor did not comment on the Office of Tax Simplification’s (“OTS”) recent review of UK capital gains tax and therefore the market will most likely have to wait until the March budget to see whether the Chancellor does in fact take on board the OTS’s recommendations (including aligning capital gains tax rates with income tax rates). Given these recommendations, many company shareholders and investors should consider whether now would be a good time to consider their tax position (especially if they are considering an exit in the near future).”