FINANCE

Budget 2020: Sunak gambles on capital spending splurge

Despite volatility caused by coronavirus and a sluggish increase in the economy, the chancellor has decided to gamble that a big increase in capital spending will deliver higher growth and productivity by the next election.

Despite volatility caused by coronavirus and a sluggish increase in the economy, the chancellor has decided to gamble that a big increase in capital spending will deliver higher growth and productivity by the next election.

Total departmental spending is expected to grow twice as fast as the economy over the three-year period of the Spending Review to 2024.

Day-to-day departmental spending is expected to grow at the fastest rate over a spending review period since Spending Review 2004.

At the same time, Mr Sunak has pledged that the current budget will remain in surplus, public sector net investment will not exceed 3% of gross domestic product (GDP) and debt will be 'kept under control'. 

Spending will be £928bn in 2020/21 and income receipts will be £873bn, of which council tax is £38bn and business rates £32bn.

The Budget Red Book read: ‘The Government is therefore borrowing to fund a new set of growth-enhancing policies focused on delivering a step-change in infrastructure investment, which aims to raise the UK's productivity growth in the long-run.

‘The direct cost of the measures is partly offset by the positive short-term impact on the fiscal position of the higher economic growth that is generated as a result of the Budget package.

'Higher growth in the short-term, and a medium-term increase in nominal GDP leads to increased tax revenues.'

Borrowing – the deficit – is lower in 2019/20, but higher in every other year of the forecast.

It rises over the forecast period from 2.1% of GDP in 2019/20 to 2.8% of GDP in 2021/22 before falling to 2.2% in 2024/25.

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