28 Oct What the Budget and Spending Review means for the ‘Global Britain’ project
On Wednesday 27th October, Chancellor Rishi Sunak released the 2021 Budget and Spending Review, declaring that the UK is entering an “age of optimism”, aiming to build “an economy of higher wages, higher skills, and rising productivity, of strong public services, vibrant communities and safer streets.” Although many of the flagship initiatives announced in the Budget and Spending Review are domestically focused, they will also have significant implications for the UK’s international status and the success of the Global Britain agenda.
1. An Uplift for the FCDO
The FCDO settlement announced in the Spending Review includes a £2.1 billion cash increase over the next four years, to enable the FCDO to “promote a positive, confident, outward-looking Global Britain”. The settlement is designed to enable the FCDO to increase funding to the UK’s highest development priorities, including increasing funding to support women and girls, and humanitarian preparedness, as well as funding the donation of the remaining 70 million doses of Covid-19 vaccines to countries in need, as part of the 100 million-dose pledge the UK made at the G7.
The settlement also provides funding consistent with the UK’s commitments to support at least £11.6 billion in International Climate Finance over five years, investment in green growth including funding a new strategic initiative to support green infrastructure through UK-backed investment, loans and expertise, and support to enable the department to reduce energy consumption by 20% by 2025. The strong environmental focus of the settlement illustrates the clear linkages between the UK’s climate leadership and the Global Britain agenda.
However, the inclusion of surplus vaccines and climate finance investments in the FCDO settlement will squeeze funding for other areas of the FCDO. Climate finance investments were initially meant to be new and additional funding for developing nations, and their inclusion in the FCDO settlement, may therefore come at the cost of other FCDO priorities.
2. The Global Britain Investment Fund
The Spending Review commits to launching a £1.4bn ‘Global Britain Investment Fund’, designed to attract more overseas investors into the UK, providing grants to international companies with ‘strategically important’ investment proposals. With climate change and the Covid-19 pandemic set to dominate much of international diplomacy for the foreseeable future, the fund will particularly focus on attracting investment in life sciences and electric vehicle production – the latter of which is an important aspect of the UK’s climate agenda ahead of COP26.
3. A Global Talent Network
The package surrounding the Global Britain Investment Fund includes plans to launch a Global Talent Network to encourage highly skilled workers to the UK in key science and technology sectors. It will sit alongside the Scale-up, High Potential Individual, and Global Business Mobility visas set to launch in Spring 2022 designed to make the UK’s visa system the most competitive in the world. The new global talent network will launch first in the United States and India. The inclusion of India in this first phase comes after the UK and India signed a new migration partnership in April 2021, and gives a clear signal of the UK’s continued commitment to enhance its ties with India, following the release of the 2030 Roadmap for India-UK Relations.
4. A Cash Injection for the Department for Trade
The Department for Trade will receive a £67.6 million cash injection to make Britain more attractive to investors, secure new free trade agreements and to promote a rules-based trading system. This increase in funding is designed to help support the planned trade deals with Australia and New Zealand over the line and to secure new deals with the United States, Canada, Mexico, India and the Gulf Cooperation Council, as well as to fund the application process to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
5. Balancing the Climate Transition and the Cost-of-Living Crisis
With COP26 imminent, Chancellor Rishi Sunak outlined new financial commitments to support a net-zero transition which is “inclusive, fair, and sustainable for all”. This includes additional funding for a range of green transport projects and for improving home energy efficiency, although much of this funding was trailed in the Net Zero Strategy released earlier this month. The Budget illustrates the challenges of balancing the climate transition and the cost of living crisis, particularly in the immediate term.
While commitments were made to raise air passenger prices on the newly created ‘ultra-long-haul’ band of international travel, the Chancellor also committed to reducing air passenger duty on domestic flights from April 2023 and to cancel planned increases in fuel duty. Both decisions were pitched by the Chancellor as bringing down the cost of living, particularly the latter, which will save the average UK car driver a cumulative £1,900, compared to the pre-2010 escalator, and the domestic flight duty reduction also nods to the significance of the Union in Government thinking. There is some concern, however, about how to square the circle on these decisions on aviation and fuel to an international audience just days before COP26.
6. A Date to Restore the 0.7% of GNI Commitment on Foreign Aid and Development
The decision to temporarily reduce the UK’s 0.7% development commitment was contingent on the UK’s financial situation during the pandemic, and Chancellor Rishi Sunak confirmed that forecasts show the UK will be able to restore this commitment by 2024-25. This is the first time the UK Government has given a precise projected timeline for the return to 0.7%, although it may now fall on the other side of the next General Election.
7. A Boost for the UK’s Soft Power Assets
The Integrated Review of the UK’s Security, Defence, Development and Foreign Policy published earlier this year, committed the UK to “thoughtful investment” in its soft power assets to maintain and ensure its status as a “soft power superpower”. However, the UK’s soft power sector has been hit particularly hard in the pandemic and there are concerns about the future of many of its vibrant cultural institutions. The Spending Review allocates additional funding to restore and upgrade a number of the UK’s cultural locations, as well as extending the Museums and Galleries Exhibition Tax Relief (MGETR) until 31 March 2024 and doubling Theatre Tax Relief, Orchestra Tax Relief and MGETR until April 2023. Similarly, there are commitments to support bids for the 2025 Women’s Rugby World Cup and the 2026 Tour de France Grand Départ. These decisions have been well received by the sector, with Arts Council England calling the announcements “welcome news for artists, art organisations, libraries and museums”.
8. A Science and Technology Superpower
The Spending Review outlines plans to increase public investment in research and development to £20 billion a year by 2024-25, an almost 25% increase in real terms. The link between the UK’s expertise in research, science and innovation and its global influence is made evident through the focus on research addressing issues such as global health and climate change. These are also areas that will carry benefits for many of the UK’s partners in the developing world. However, while the increase in investment in research and development is welcome, it should be noted that this represents a £2 billion reduction from the targets announced in the March 2020 budget, which pledged to spend £22 billion a year by 2024-25.
9. Real Term Reductions to Defence Spending
Last year, the UK committed to a £24 billion increase in defence spending over four years, against the 202-21 budget, the largest sustained increase in defence spending since the Cold War. However, this year, the Ministry of Defence became the only department to face a cut in its day-to-day spending, experiencing a decrease of 1.4% in average annual real-term growth from 2021 to 2025 in day-to-day departmental spending. As such, while last year’s investment means the Ministry of Defence has the finances to invest in its major modernisation projects through its capital spending, military personnel may bear the brunt of reductions in day-to-day spending.