In his spending review and autumn statement, delivered on 25 November 2015, the chancellor confirmed the government’s plan to reach a surplus of £10 billion by 2019–20. In comparison with the predictions in the summer budget, a £27 billion improvement in public finances is now forecast. This has allowed a decrease in planned borrowing over the next four years of £8 billion, and an increase in planned investment of £12 billion.
The government has decided not to proceed with the proposed changes to tax credits. This means that the welfare cap will not be met until 2019–20.
£5.8 billion will be raised from further sales of shares in the Royal Bank of Scotland over the next five years, and further shares in Lloyds Banking Group will be sold next year.
Savings from unprotected departments will amount to £21.5 billion, of which £9.5 billion will be reinvested – an overall consolidation of £12 billion. Among the core priorities protected from spending reductions are defence, overseas aid, the national health service, pensions, schools, higher education, the police, and arts and museums. There will also be significant capital investment in infrastructure, science and digitising government services.
Headline points from the autumn statement and spending review include the following:
Defence – an additional £3.5 billion for new defence and security capabilities, with the strategic defence and security review funded in full, including 24 F35 jets, 9 maritime patrol aircraft, and 1,900 more intelligence officers.
Police – spending is to be increased by £900 million in cash terms by 2019–20, with £1 billion invested in a next-generation 4G communications network.
Overseas aid – to continue at 0.7% of gross national income, rising to £16.3 billion per year by 2020. This includes an increase in aid spending for the Syrian crisis, with £460 million to resettle up to 20,000 of the most vulnerable Syrian refugees.
Health and social care – an increase in NHS spending in England from £101 billion in 2015–16 to £120 billion by 2020–21. This includes funding 800,000 more elective admissions for operations, 5.5 million more outpatient appointments, 2 million more diagnostic tests, and an investment of £600 million in mental health services. £5 billion will be invested in health research and development. Local authorities will also be able to add a precept of 2% to their council tax to fund adult social care. The Dilnot proposals for a cap on individual care costs will not be introduced until 2020, by when it is hoped that health and social care will be integrated.
Wages and pensions – in the continuing drive towards a higher wage, lower tax, lower welfare economy, the new national living wage is forecast to rise to over £9 by 2020. The proposal to abolish tax credits next year has been abandoned, but the longer-term plan to move to the new system of universal credit will still proceed. There will be a new cap on housing benefit, which will no longer be paid to those who go abroad for more than four weeks. The state pension will again be increased by the triple lock next April, rising to £119.30 a week.
Household bills – the government will consult on measures to end the right to cash compensation for minor whiplash injuries, with the aim of reducing car insurance premiums. VAT raised on sanitary products will be given to women’s charities.
Housing – the housing budget will be doubled from 2018–19 with the aim of delivering 400,000 affordable housing starts by 2020–21. The right to buy will be extended to housing association tenants. Total investment in housing over the next four years will be £20 billion. From April 2016, stamp duty land tax on buy-to-let properties and second homes will be increased by 3%, a move expected to raise £880 million a year by 2020–21.
Business tax – the eligibility criteria of tax-advantaged venture capital schemes (the Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trusts) will be amended to exclude all energy generation activities. The government hopes to increase flexibility for replacement capital within the schemes, subject to state aid approval, but no details have been announced. The recent changes tightening the rules on entrepreneurs’ relief will be modified to ensure the relief is available for genuine transactions. Employee share schemes will be simplified. New tax avoidance measures include a penalty of 60% of the tax due in all cases found to be within the general anti-abuse rule. A targeted anti-avoidance rule is to be introduced to prevent avoidance of stamp duty, and the intangible fixed assets regime will be amended. There will be new penalties for offshore tax evasion.
Personal tax – from April 2019, capital gains tax will be payable within 30 days of completion of any disposal of residential property, rather than between 10 and 22 months later, as now. ISAs of deceased persons will benefit from tax advantages during the period of administration. The government does not now plan new restrictions on the use of deeds of variation for tax purposes.
Tax collection – £1.3 billion will be invested in HMRC’s digital systems, and most businesses, self-employed people and landlords will have to manage their tax affairs digitally by 2020, providing HMRC with quarterly updates.
Childcare and schools – total spending on education is to increase from £60 billion in 2015–16 to nearly £65 billion in 2020. The free childcare entitlement for 3 and 4 year-olds will be doubled to 30 hours per week from September 2017, plus tax-free childcare from early 2017. The core schools budget is protected in real terms, and a new national funding formula for schools will be introduced. £23 billion will be invested in school buildings, including 500 new free schools and 500 refurbished schools.
Apprenticeships and higher education – the apprenticeship levy on larger employers will be introduced in April 2017 at 0.5% of an employer’s wages bill, with an allowance of £15,000; this will raise £3 billion by 2019–20. Universities will be able to expand with the removal of the student numbers cap. There will be a new Institute of Coding, a new university in Hereford focused on engineering, and a new campus for the Royal College of Art in Battersea.
Science – the £4.7 billion budget will be protected in real terms for the rest of the parliament. Up to £150 million will be available for a Dementia Institute. A new body, Research UK, will take a strategic approach to science funding, working across the research councils.
Transport – £61 billion will be invested in transport, including £15 billion on roads and starting construction of HS2. Rail passengers will be given compensation when trains are more than 15 minutes late, and flexible season tickets will be introduced on some routes. £475 million will be available for large local transport projects, and £300 million for a new transport development fund.
Energy – investment on energy innovation will double, with a nuclear research and development programme including development of a small modular reactor design. Funding for the renewable heat initiative will be increased.
Arts – funding for museums and galleries will be maintained in cash terms. A new tax relief for museums and galleries will be considered. Capital investments in culture to a value of £1.6 billion will include museums in Manchester and a new storage facility for national museums in London to replace Blythe House.
Business rates – as previously announced, English local authorities will retain 100% of business rate revenues by the end of the parliament, though some revenue will continue to be redistributed, and the main local government grant will be phased out. Councils will be able to cut business rates as they choose, and elected mayors will be able to add a premium to fund new infrastructure with the support of their local enterprise partnership. The doubling of small business rate relief in England will be extended for twelve months to April 2017.
Devolution – there will be increased capital expenditure for Northern Ireland and plans to devolve corporation tax powers to the Northern Ireland Assembly will be progressed. Scottish and Welsh capital budgets will also be increased and the Burrell Collection will be refurbished. An infrastructure fund for the Cardiff region is planned.
English regions – 18 new enterprise zones will be created and 8 current zones expanded. There will be support for development around the new HS2 stations at Old Oak Common and Birmingham Curzon Street. As part of the Northern Powerhouse, £13 billion will be spent on transport in the north, including smart and integrated ticketing for bus, tram, metro and rail services. £500 million will be invested in smaller businesses across the north.
The south west – projects include new air routes from Newquay to Leeds and from Exeter to Norwich, and the North Devon Link Road and a new station between Castle Cary and Taunton will be eligible to bid for funds. A new National College for Nuclear will be based in Somerset. £150 million will be spent to reduce South West Water customers’ bills. £5 million will be provided for the Colston Hall in Bristol, and £500,000 to celebrate the 400th anniversary of the sailing of the Mayflower in Plymouth in 2020. The Bristol Temple Quarter and Somer Valley enterprise zones will be extended.
Justice – £1.3 billion will be spent on prisons, with 9 new prisons built. Investment in digitising the courts will be increased to £700 million. Investment will be made in border technology and the passport and immigration system.
Government assets – an additional £4.5 billion of government property will be released. Other possible sales include the government’s shareholding in the National Air Traffic Services, possible privatisation of Land Registry, and bringing private capital into the Ordnance Survey. Network Rail will be allowed to sell assets and reinvest the proceeds in rail infrastructure.
Click here to link to the Spending Review and Autumn Statement 2015 document on the government website.