Monthly Archives: November 2020

gk - What to expect from the 2020 Comprehensive Spending Review

What to expect from the 2020 Comprehensive Spending Review

The Comprehensive Spending Review has been dialled back in ambition but will still set the future direction of departmental spending and will impact on policy development, writes Rt Hon David Laws, former Cabinet Minister

It is commonplace these days for large parts of Budgets and Spending Reviews to be leaked in advance, so it is no surprise that we have already learned that in next week’s Spending Review the Defence budget will get a boost, while Overseas Aid faces cuts – as yet, of an uncertain size.

This Spending Review is arguably less important than when it was first announced, many months ago, because at that stage it was designed to be a long term review, setting out spending plans for the next three years. The Treasury has now understandably got cold feet about long term spending plans, when there is so much uncertainty about the size of our economy next month, let alone in three years’ time. So, because of COVID, most budgets will only be set for the financial year ahead (incidentally one-year settlements are the norm across many western nations).

But to conclude that the Review no longer matters would be a big mistake, for three reasons. Firstly, it will allocate hundreds of billions of pounds over the next year, and it could involve some big changes in priorities. Budgets such as health, business support and welfare could be increased dramatically due to COVID related pressures. Other budgets could also face a big squeeze, as the Treasury fights to prevent a further upward spiral in public borrowing.

Secondly, while budgets for day-to-day spending may only be set for a year, the allocations for “capital spending” could be set for much longer periods – perhaps even up to a decade. These days the Treasury accepts the case for longer term capital budgets for infrastructure spending, in areas such as transport, housing, defence equipment, and school building. And with interest rates at historic lows, money for such projects can be accessed incredibly cheaply – meaning that productive investments can be made for a zero or even negative real cost. In some policy areas departments have been pressing for longer term capital budgets than have been usual in the past (for example school buildings), and it will be interesting to see if the Treasury is willing to allocate more capital spending for 5-10 years, rather than the usual three.

Finally, this is our first real opportunity to see the spending priorities of what is, after all, essentially a new government. While much will be distorted by the near term imperatives of responding to the COVID crisis, it should also be possible to discern new areas of priority, and to distinguish these from areas the government does not seem to want to give top billing to.

It is important to understand the Spending Review process, and what the final published “numbers” actually mean. In essence, the Treasury starts by deciding privately how much in total it wants to spend and save, and it then sends out a proposed “settlement” to departments. Departments then supply detailed papers, usually explaining why they want more money, and make the Treasury a counter-proposal about how much money should be allocated. The Treasury knows departments will never settle at the first number it proposes, so it always builds some “fat” into the negotiation, which it can generously concede. But it will have a “bottom line” with each department that it cannot go beyond, if the Spending Review as a whole is to add up.

During these negotiations, departments will look at their spending programmes in huge detail – and will have assumptions for every programme about how its budget should grow or shrink. This means that when the Review is concluded and announced, there is a departmental assumption somewhere about how each budget line will be affected. But this detailed information is usually not publicly released on the day of the Spending Review – leaving more time for departments to decide how to “share out the cake” So it’s crucial to understand that not all decisions on individual budgets will be baked in after the Spending Review is announced, and within departments there is huge scope to debate and discuss what the spending priorities should be.

That’s why for all those interested in helping shape the detail of government spending, next week’s announcement should not be seen as the end of a process, but as an opportunity to start more detailed and serious engagement with Ministers, advisers and civil servants.

gk - What does a Biden presidency mean for Private Equity_

What does a Biden presidency mean for Private Equity?

By Ioan Phillips, Senior Political Analyst

Joe Biden has finally been confirmed as US President, following several fraught days of ballot-counting. But what does his victory mean for Private Equity?

Many in the industry will be glad to see the back of the volatility that characterised policy-making in the Trump administration.

While the platform Biden ran on suggests higher taxation and tighter regulation overall (trends that are typically negative for deal activity), the priority afforded to tackling COVID-19 and climate change could open up opportunities for assets in the healthcare and built environment sectors. We outline these themes in more depth below.

Tax rises: Low-hanging fruit?

Biden talked a lot about raising corporation tax during the campaign. If the Democrats control both houses of Congress come January, expect to see an increase prioritised as part of the new administration’s legislative agenda. This move would reduce the profitability of larger assets and Private Equity firms trading as corporations – but it is smart politics for a President who crafted his personal brand around standing up for “ordinary folk”.

The incoming President also sees an easy political win from raising Capital Gains Tax (CGT) on all income above $1 million, as well as a timely revenue raiser that helps offset losses from COVID-19.

Tighter regulation and scrutiny of M&As

Biden is no firebrand, but he and his party have stressed the need to better regulate M&As – especially those in sectors, such as technology, where issues of national security arise. The Democrats already proposed legislation during Trump’s presidency that sought to increase the oversight powers of the Federal Trade Commission (FTC) and broaden its regulatory remit.

In addition, it is likely that the Biden administration will use the appointment of progressive figures to drive tighter enforcement of antitrust regulations.

Fighting COVID-19

Biden’s acknowledgement that social distancing measures will have to continue into next year will likely sustain demand heightened for companies that can provider remote medical assistance and advice – or adapt their offering accordingly.

Against this, it is worth considering how any tightening of regulation around M&As may affect demand for healthcare assets. With Democrat proposals aimed at encouraging greater pluralism within markets, this could create favourable procurement environment for smaller healthcare firms seeking entry into state- or federal-level supply chains.

Green opportunities

Biden promised to increase taxes on carbon emissions and increase subsidies for clean energy sources. This is likely to augment demand for assets active in the sustainable energy sphere.

How GK can help investors and businesses

Biden’s agenda is arguably the most radical of any incoming president since Franklin Delano Roosevelt.

GK Strategy has helped many international firms operating similarly fluid fiscal, political, and regulatory frameworks. Whether advising investors and management teams on the sell-side and buy-side in a transaction process, working with investor-backed businesses and Private Equity firms on engagement with policy-makers, or providing ongoing support and advice on the political and regulatory environment, GK’s political, policy and regulatory DD offering leads the field in mitigating risk and value creation.

For more information, please contact our Head of Investor Services, Martin Summers, via

gk launches education &skills insights report

GK launches Education & Skills Insights Report

We are delighted to announce the launch of GK’s new education and skills insights monthly report. Our team of consultants have created insightful content that looks at some of the most important trends and developments across the whole of the education and skills space.

Topics covered this month include:

  1. Five things to look out for in education policy – by David Laws, Strategic Advisor
  2. Interpreting changes to the National Funding Formula – by Joe Berkhout, Account Manager
  3. All steam ahead for international students in the UK – by Olivia Rohll, Senior Political Analyst
  4. What to expect from the review of children’s social care – by Jamie Cater, Head of Policy
  5. Form over functional skills – by Mike Williams, Account Director
  6. Research Impact: Better policy is possible – by Ed Jones, Account Manager
  7. Where next for FE after COVID-19? – by Ioan Phillips, Senior Political Analyst

Download a copy of the report here:  Education and Skills Insights – November