Chancellor Rishi Sunak has unveiled a £4bn levelling up fund as part of a Spending Review which he claimed offered ‘huge investment’ in jobs, public services and infrastructure.

The fund will see councils bid for up to £20m each to fund roads, railway stations, museums and art galleries. He said: ‘Projects must have real impact. They must be delivered within this Parliament.‘And they must command local support, including from their Member of Parliament. This is about funding the infrastructure of everyday life.’

 It comes in addition to the £100bn green recovery fund and a refresh of the Green book to shift the bias away from investment in the South East.

An expected pay freeze for public sector workers – aside from increases for doctors and nurses – was softened by the news the lowest paid would see an increase in pay of at least £250.

Commenting on Twitter IFS director Paul Johnson said: ‘Unpopular to say this but for lowest paid there is already a gap between public and private sector in favour of public sector. It's among the highest skilled that public sector underpays.’

The Chancellor announced he was increasing ‘core spending power’ for local authorities by 4.5%.

He said: ‘We’re investing in social care, too. Today’s settlement allows local authorities to increase their core spending power by 4.5%.

‘Local authorities will have extra flexibility for council tax and adult social care precept which together with £300 million of new grant funding gives them access to an extra billions pounds to fund social care.

‘And this is on top of the extra billion-pound social care grant we provided this year, which I can confirm will be maintained into next year.’

The immediate priority of tackling COVID-19 saw the Chancellor allocating £55bn next year, including £2.6bn to the devolved nations. There was a £6.3bn cash increase in NHS spending in 2021-22 compared with 2020-21, and £2.2bn for schools. Mr Sunak confirmed the government would continue to fund holiday school meals through to Christmas 2021.

Mr Sunak said: ‘Our health emergency is not yet over, and the economic emergency has only just begun; so our immediate priority is to protect people’s lives and livelihoods.

‘But today’s Spending Review also delivers stronger public services - paying for new hospitals, better schools and safer streets. And it delivers a once-in-a-generation investment in infrastructure. Creating jobs, growing the economy, and increasing pride in the places people call home.’

The chancellor announced an increase in the National Living Wage and he has frozen the business rates multiplier in 2021-22.

According to OBR forecasts, the economy will contract by 11.3% this year, the largest drop in output for more than 300 years. Despite a rapid recovery the 2025 economy is still expected to be around 3% smaller than expected.

Responding to the announcement, Localis chief executive, Jonathan Werran, said: 'On the face of it the local state lives to fight another day from today’s Spending Review announcement with probably just enough in extra day-to-day money to protect frontline services and ceiling room to raise extra council tax to fund social care.'