Reaction to Chancellor's spending review

The Chancellor’s commitment to investing in infrastructure and retraining unemployed workers has been welcomed by business leaders.

However, Greater Birmingham Chambers of Commerce said the Government must now go a step further by committing to deliver HS2 in full.

Rishi Sunak said in his spending review that the economy will contract by 11.3 per cent this year – the biggest decline in three years – and could take until the end of 2022 to return to pre-pandemic levels.

He used the review to set out plans for a £100bn investment in infrastructure next year, with plans for a new infrastructure bank in the north of England and a £4bn levelling up fund to which any region can bid for local project funding.

With unemployment forecast to peak at 7.5 per cent in 2021, a new three-year, £2.9 billion restart programme has been announced to help more than one-million unemployed people find work.

Paul Faulkner, chief executive of the GBCC, said: “The Chancellor laid bare the stark realities facing the country as we attempt to overcome the damage caused by Coronavirus – record levels of borrowing and unprecedented levels of unemployment will naturally undermine attempts at reviving our fragile economy over the next six to 12 months.

“With an unemployment crisis on the horizon, it was pleasing to see a substantial commitment to retraining unemployed workers, sharpening the effectiveness of the Apprentice system and upgrading colleges – all vital elements in helping young people develop the skills they need to secure work in such an unstable environment.

“Beyond a vague reference to the Shared Prosperity Fund, there was very little information on how the Government will help businesses transition to a post Brexit landscape. As we highlighted in our Keep Business Moving report, firms are still lacking the clarity they require to make longer term decisions related to investing in their people and products.

“The Government adage of Building Back Better was at the heart of the Chancellor’s announcements related to infrastructure and we welcome the additional capital spend that is going to be required to strengthen the foundations of the domestic economy.

“The concept of a Levelling Up Fund also sounds promising but for it to be truly effective, party political differences will need to be put aside in order to attract much needed investment across parts of our region.

“It was also disappointing to see that HMT have stuck with their original decision to remove tax free shopping for international tourists – as we pointed out earlier in the week, this is likely to severely dent our visitor economy and put thousands of jobs across the country as risk.”

The Chamber also says a swift commitment to delivering the full HS2 network is needed – including the eastern leg between Birmingham and Leeds.

Raj Kandola, senior policy and patronage adviser, said: “One of our key asks prior to the release of the Spending Review was for the Government to reaffirm it’s commitment to delivering HS2 in full.

“And whilst it’s pleasing to see in the National Infrastructure Strategy that the WMCA will be granted substantial funding to spend on local transport projects, the lack of reference to the eastern leg of the second phase of the project is very concerning and simply undermines the Government’s supposed commitment to levelling up the country.”

Julia Rosenbloom, Tax Partner at Smith & Williamson LLP, added: “The Chancellor is kicking the can down the road with this Spending Review.

"At some point we will have to address the historic rates of government borrowing, which means two inevitables: tax rises and spending cuts. While today isn’t the right time for tax rises, they are likely to be on the horizon for 2021 so individuals and businesses should reflect on their tax planning now before any changes are made.

“For individuals, the pinch will be felt by those passing wealth to loved ones. It’s possible the Government could abolish the ability to make a gift to someone of unlimited value and it be exempt from IHT should you live for further seven years. Passing property or other investments to children or grandchildren could also see a Capital Gains Tax hike to up to 45%; representing an alignment with the current Income Tax rates.

“For companies, a tax hike relating to investments including property is possible. We could see the rate rise significantly from the current 19%. The Chancellor may also consider changing the tax rules for companies so that property gains in companies are taxed on shareholders personally and subject to higher rates of personal CGT, rather than lower rates of Corporation Tax, possibly with an acceleration of when the tax has to be paid.”