Chancellor announces new £4bn levelling up fund as country enters 'economic emergency'

Rishi Sunak has announced a new £4bn levelling up fund as he warned that while the health emergency of coronavirus was coming to an end, the economic emergency was just beginning.
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Chancellor Mr Sunak set out the plans during the Spending Review, which he unveiled in the Commons this afternoon against a bleak backdrop for the economy.

The Office for Budget Responsibility (OBR) is forecasting the economy will contract this year by 11.3 per cent, the Chancellor said.

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And he outlined how: “Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022 – and the economic damage is likely to be lasting. Long-term scarring means, in 2025, the economy will be around three per cent smaller than expected in the March Budget.”

Rishi Sunak leaves for Parliament to deliver the spending review. Photo: PARishi Sunak leaves for Parliament to deliver the spending review. Photo: PA
Rishi Sunak leaves for Parliament to deliver the spending review. Photo: PA

But he said the Government is providing £280bn to “get our country through coronavirus”, telling MPs: “Next year, to fund our programmes on testing, personal protective equipment and vaccines, we are allocating an initial £18bn.”

The Chancellor said £3bn would be provided to support NHS recovery – allowing them to carry out up to one million checks, scans, and operations – while more than £2bn will be spent on transport, with funding to subsidise rail networks.

He added: “Taken together, next year, public services funding to tackle coronavirus will total £55bn.”

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But there were also freezes to public sector pay, except for one million doctors and nurses in the NHS and those earning under £24,000, and a cut in the overseas aid budget from 0.7 per cent of GDP to 0.5 per cent.

He said: “Our health emergency is not yet over. And our economic emergency has only just begun.

“So our immediate priority is to protect people’s lives and livelihoods.”

The Government will borrow an eye-watering £394 billion this year, equivalent to 19 per cent of GDP – the highest ever recorded in peacetime.

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Although borrowing will subsequently fall, the national debt is forecast to reach 97.5 per cent of GDP in 2025-26.

“This situation is clearly unsustainable over the medium term,” Mr Sunak admitted.

While Mr Sunak continued to allocate large sums to tackling the ongoing emergency he confirmed there would be restraint in pay awards for public sector workers and a cut in overseas aid.

The Chancellor said he “cannot justify a significant, across-the-board” pay increase for all public sector workers in the circumstances.

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Over a million nurses, doctors and others working in the NHS will get a rise but pay rises for the rest of the public sector will be “paused” – except for the 2.1m workers earning below the median wage of £24,000, who will receive an increase of at least £250.

The cut to the aid budget sees the Government reneging on a legal pledge and manifesto commitment to spend 0.7 per cent of national income on development assistance.

But money would go towards what Mr Sunak called a £4bn “levelling up fund”.

The pot will be designed for investment in local infrastructure that is deliverable within this Parliament and makes a real difference to local areas.

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It will be open to all local areas in England and prioritise bids to drive growth and regeneration in places in need, those facing particular challenges, and areas that have received less government investment in recent years.

Documents released by the Treasury said the idea was the money would go towards projects such as “local road schemes, bus lanes, railway station upgrades, regenerating eyesores, upgrading town centres and community infrastructure, and local arts and culture”.

Some £600m will be available for 2020/21, with projects expected to be worth no more than £20m.

The Government will publish a prospectus for the fund and launch the first round of competitions in the New Year.

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Mr Sunak said: “Projects must have real impact, they must be delivered within this Parliament, and they must command local support, including from their Member of Parliament.”

But Shadow Chancellor Anneliese Dodds said: “The levelling-up fund the Chancellor just announced, his rabbit out of the hat, yet again involves MPs, just as with the Beeching’s reopening programme, going to ministers and begging for support for their areas, rather than that change being driven from local communities.

“So much for taking back control, this is about the centre handing over support in a very top-down manner.”

Ms Dodds said the Government’s claim that it is “levelling up” the country “simply don’t match the evidence”.

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She told MPs: “£12bn so far spent on a Test and Trace system that is still not working.

“And today, news of £10bn in additional costs for PPE, at least partly down to the Conservatives’ lack of pre-pandemic planning.

“This waste and mismanagement is part of a longer-term pattern showing that claims today around levelling up simply don’t match the evidence.”

Mr Sunak also announced the Government will publish a national infrastructure strategy, explaining: “To help finance our plans, I can announce we will establish a new UK infrastructure bank.

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“Headquartered in the north of England, the bank will work with the private sector to finance major new investment projects across the UK – starting this spring.”

Other announcements included:

- The schools budgets will increase next year by £2.2bn;

- Total domestic UK-wide funding will “at least match EU receipts” while the “core health budget” will grow by £6.6bn next year;

- The minimum wage will increase by 2.2 per cent to £8.91 an hour, with this rate extended to those aged 23 and over;

- On departmental spending, the Chancellor said it will total £540bn next year;

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- Nearly £3bn would be provided to Work and Pensions Secretary Therese Coffey to deliver a new three-year “restart programme” to help more than one million people who have been unemployed for more than 12 months to find new work.

Mr Sunak said: “We in Government can set the direction – better schools, more homes, stronger defence, safer streets, green energy, technological development, improved rail, enhanced roads, all investments that will create jobs and give every person in this country the chance to meet their potential.

“But it is the individual, the family, and the community that must become stronger, healthier and happier as a result. This is the true measure of our success.

“The spending announced today is secondary to the courage, wisdom, kindness and creativity it unleashes. These are the incalculable but essential parts of our future, and they cannot be mandated or distributed by Government.

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“These things must come from each of us, and be shared freely, because the future, this better country, is a common endeavour.

“Today Government has funded the priorities of the British people, now the job of delivering them begins.”