Chancellor Rishi Sunak said the government was dealing with an “economic emergency”. The UK economy is expected to shrink by 11.3% this year and not return to its pre-crisis size until the end of 2022
Chancellor Rishi Sunak in the Spending Review unveiled measures to shore up Britain’s sagging economy. The chancellor said the country is on “economic emergency” caused by Covid-19.
The chancellor said the Covid fallout on economy has only just begun and it will cause lasting damage to growth and jobs.
The UK economy is expected to shrink by 11.3% this year and not return to its pre-crisis size until the end of 2022. The unemployment rate will hit 7.5%, its highest level since the financial crisis in 2009.
Government borrowing will rise to its highest outside of wartime to deal with the economic impact.
The government’s independent forecaster, the Office for Budget Responsibility (OBR) expects the number of unemployed people to surge to 2.6 million by the middle of next year. However, fewer jobs are expected to be lost than predicted this summer.
UK Aid Cut
The chancellor ignored the plea from five former prime ministers to slash UK’s foreign aid commitment.
“Sticking rigidly to spending 0.7% of GDP on overseas aid is difficult to justify to the British people,” the chancellor said and adding that aid spending would fall to £10bn in in 2020-21. The aid target would be cut to 0.5%, Sunak confirmed, adding he hoped the 0.7% target could be restored when the UK’s finances allowed it.
Foreign Office Minister Lady Sugg resigned after the chancellor announced that he was breaking the manifesto commitment.
Lady Sugg, whose brief includes sustainable development, submitted her resignation to Prime Minister Johnson in protest against the cut.
In her resignation letter, she wrote: “Many in our country face severe challenges as a result of the pandemic and I know the government must make very difficult choices in response. But I believe it is fundamentally wrong to abandon our commitment to spend 0.7% of gross national income on development.
“This promise should be kept in the tough times as well as the good. Given the link between our development spend and the health of our economy, the economic downturn has already led to significant cuts this year and I do not believe we should reduce our support further at a time of unprecedented global crises.”
Public Sector Workers
Mr Sunak confirmed that public sector workers – excluding some NHS staff and those earning less than £24,000 – will have their pay frozen next year. The chancellor said he could not justify an across the board rise when many in the private sector had seen their pay and hours cut in the crisis.
The government has extended its furlough scheme to support jobs and wages until next March. Mr Sunak said the government had already spent £280bn to help support the economy through the coronavirus.
It will spend a further £55bn next year as part of a package of measures to support the recovery. This includes billions of pounds to help people find jobs. However, Mr Sunak said long-term scarring meant the economy would be 3% smaller in 2025 than expected in the March budget.
Lib Dems Slam Sunak
“With the economic uncertainty caused by the pandemic, the Chancellor needed to ensure today that no one is left behind. That was the litmus test, and he has failed,” said Sir Ed Davey, the Leader of the Liberal Democrats.
“Far from a radically new approach to the recovery that tackles deep-seated inequality and builds a new green economy, we have a Government that is failing to support carers, children living in poverty and everyone in need of mental health services.”
“The Chancellor has also made some unforgivable political choices today. He has chosen to continue to ignore people excluded from support and chosen to reject calls to properly extend furlough, leaving too many people facing unemployment. People deserve better.”