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Rishi Sunak has announced a public sector pay freeze and a cut in foreign aid spending as the UK grapples with mounting debt and unemployment amid a huge COVID-induced economic contraction.
When he announced his one-year spending review to the House of Commons on Wednesday, the chancellor declared that the “economic emergency” from the coronavirus pandemic “has only just begun.”
With a forecast for UK borrowing to hit £ 394bn this year, equivalent to 19% of GDP and the highest level on record in the country’s peacetime history, Sunak announced a pay freeze for sector workers. public outside the NHS.
It also abandoned a commitment from the Conservative manifesto to fund the foreign aid budget at the equivalent of 0.7% of gross national income, instead of cutting it to 0.5%.
The OBR has also forecast an 11.3% contraction in the UK economy this year.
Mr. Sunak told MPs that the Office of Budget Responsibility (OBR) expects unemployment to rise to a peak of 2.6 million people next summer.
The OBR also forecast an 11.3% contraction in the UK economy this year, the biggest drop in output in more than 300 years, the chancellor said.
Sunak added: “Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022.
“And the economic damage is likely to be long-lasting. The long-term scars mean that, in 2025, the economy will be around 3% smaller than expected in the March budget.”
Sunak said the government had provided £ 280bn this year to combat the COVID crisis, with an initial £ 18bn already allocated for next year to spend on personal protective equipment, tests and vaccines.
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Cut in foreign aid for ‘jobs and services in the UK’
But the chancellor also set new spending, with a new £ 4bn “leveling” fund to allow local areas to bid on funding for local projects.
Among Sunak’s ads was a £ 4.3 billion support package to help the unemployed find work.
This includes a new £ 2.9 billion three-year plan to assist one million unemployed in their job search, along with £ 1.4 billion of new funding to increase the capacity of Job Center Plus.
Earlier Wednesday, Sunak and Treasury Chief Secretary Steve Barclay updated the cabinet ahead of the spending review.
Cabinet ministers were warned that the economic forecasts of the Office of Budget Responsibility (OBR) constituted a “sobering reading.”
A spokesperson for Number 10 said: “The cabinet was told that the OBR forecasts will show the impact that the coronavirus pandemic has had on our economy and will be a sobering reading, showing the extent to which the economy has contracted and the scale. of loans and debt. ” levels.
“But, as the IMF (International Monetary Fund), OBR and others have pointed out, the costs would have been much higher if we had not acted the way we have.”
The chancellor set out the government’s three priorities for the spending review: protecting people’s lives and livelihoods, investing in public services and providing infrastructure funds to “level and spread opportunity” across the UK.
Wednesday’s spending review came a week before England’s month-long lockdown ended.
This will allow all stores in the country to open for three weeks before Christmas and, as Mr Sunak hopes, will provide a much-needed boost to the economy.
The Prime Minister and Chancellor were to address the 1922 Conservative Deputies Committee on Wednesday night.
Chancellor Rishi Sunak shared his spending review with MPs
Analysis: no peacetime foreign minister has faced such a red sea
By Paul Kelso, Business Correspondent
Rishi Sunak set the tone for his spending review with the opening sentence: “Our health emergency is not over yet and our economic emergency has just begun.”
The scale of that emergency was suppressed even if much of it was expected, and in parts not as truly dire as the Office of Budget Responsibility had previously predicted.
The economy will have contracted 11.3% by the end of the year and GDP will not recover to pre-COVID levels until the second half of 2022. By 2025 it will continue to be 3% lower than expected in the March budget.
Meanwhile, loans to tackle the pandemic have been stratospheric, £ 394 billion this year and another £ 164 billion next, of which £ 55 billion will be for specific COVID projects, including NHS Test & Trace.
And unemployment, the devastating human metric of any recession, is projected to reach 2.6 million people next year.
No peacetime foreign minister has faced such a red sea, but Sunak offered only two confirmed cuts to public spending to offset the tide.
The first, a wage freeze for public sector workers.
One million NHS employees are exempt and those making less than £ 24,000 will receive a one-time raise of £ 250 next year, but it still leaves millions celebrated as “key workers” facing a pay cut in real terms.
The second was the foreign aid budget, established by law by the David Cameron government at 0.7% of GDP, but now it will be cut to 0.5% until “fiscal conditions allow” a return.
The chancellor promised that departmental spending will increase along with the national living wage and offered a checklist of measures and initiatives, from jobs to new infrastructure.
But surprisingly there was no mention of Brexit, not even acknowledging the cliff edge looming in just 36 days if there is no deal, a result that the OBR says will cut a further 2% of GDP.
When the chancellor sat down, we knew more about how this government hopes to chart a path to recovery, but so far only two groups, key workers and poor foreigners, will help pay for it.
