The Chancellor unveiled the government’s spending plans for the coming year in the House of Commons today.

Rishi Sunak’s Spending Review revealed that the government is set to borrow £394bn this year, with the impact of coronavirus predicted to see the economy contract by 11.3%, according to the Office for Budget Responsibility (OBR), before growing by 5.5% next year, and 6.6% in 2022.

MoneyAge has rounded up reaction from the financial services industry to the implications of the government’s plans for the economy.

National home building fund

Economist and Landbay CEO, John Goodall, commented: “In a year that has seen the highest borrowing in peacetime history, the housing market has held up remarkably well. Buoyed by the stamp duty holiday, demand to buy still outstrips the supply of housing by some margin, so the need to increase the housing stock grows ever more urgent. The Chancellor’s £7.1bn national home building fund is a step in the right direction but needs to translate into action, so we really see more homes being built and quickly.

“With unemployment to hit 7.5% next year and stamp duty reintroduced, it will be harder for many people to buy, but that doesn’t take away the need for housing.  With councils and housing associations unable to meet this need, that demand will inevitably fall on the private rental sector instead.

“While the government needs all the income it can get, a tapering of the stamp duty holiday beyond 31 March and support for landlords to provide good quality rental property is what is needed to help meet this housing need as the need for rental property is likely to hit heights not seen in modern times.”

‘Positive outlook for equities’

Royal London Asset Management head of multi asset, Trevor Greetham, said: “We’re left with the impression that we are going to see permanently higher debt levels, continued financial repression with interest rates kept artificially low and a higher trend in inflation. For investors, this means persistently low interest rates and a positive outlook for assets like equities, property and commodities which have a good track record in beating inflation over the long run.

“It is already set to be difficult to grow our way out of debt with Brexit set to drag on the economy by 5 to 8% over the next 15 years, according to the November 2018 Treasury impact assessment. The long-term impact of the COVID-19 crisis is expected to be smaller, around the 2% mark, as a post-COVID recovery will restore much of the output lost over 2020. A new era of austerity would further hamper growth and could come at a high political cost.”

Infrastructure

CBI chief economist, Rain Newton-Smith, commented: “We know just how vital refreshing our ageing infrastructure is to repower the economy, connect more people and create job opportunities across the UK. Putting money into roads, broadband and clean energy will help do just that.

“Most importantly of all, the government has set out its stall for the long-term by creating a National Infrastructure Bank. With the right remit, the bank has the potential, to crowd in the private finance that will be crucial to delivering these new projects.”

Foresight Capital Management director and head of investments, Mark Brennan, added: “With £100bn of government spending on infrastructure now planned through to 2022, today’s Spending Review represents a definitive commitment to substantial investment across social and economic infrastructure in the UK.

“Crucially, the government remains firmly committed the role of private capital, and the establishment of a UK Infrastructure Bank in 2021 could be a transformative catalyst for crowding-in private investment.”

Public sector pay

TUC general secretary, Frances O’Grady, said: “For all the government’s talk of levelling up, this Spending Review will level down Britain, hitting key workers’ pay and breaking the government’s promises to the lowest paid. After a decade of standstill pay, yet another pay freeze is a kick in the teeth for the key workers in the public sector who kept the country going in this crisis.

“And workers expecting a national minimum wage increase – not least the two million who are key workers – have been let down by the government’s decision to row back on the full rise they were promised.

“If the Chancellor wants to stop mass unemployment, the test will be how quickly today’s infrastructure announcements deliver enough good jobs in the parts of the country that need them most.

“As unemployment rises, the UK’s safety net is still broken – and the Chancellor did little to fix it. He should have raised sick pay to at least the real living wage so that people can afford to self-isolate. He should have boosted universal credit. And he should have helped working families with a rise in child benefit and extra cash to keep nurseries open.”

‘More questions than answers’

Canada Life technical director, Andrew Tully, commented: “Today’s spending review seems to have created more questions rather than providing any answers. As the bill for COVID-19 continues to grow and more spending commitments are announced it is clear that the money will have to be found from somewhere.

“The question that still remains is what will the Treasury find when they rummaging down the back of the proverbial sofa for ways to increase income or save money. Advisers should be careful they don’t assume they are out of the woods just yet as there are still more questions to be answered.”

Share Story: