The pandemic is likely to deal lasting damage to growth and jobs, Chancellor Rishi Sunak told MPs today, warning that the “economic emergency” has only just begun.
The UK economy is expected to shrink by 11.3 per cent this year and not return to its pre-crisis size until the end of 2022. He said in his Spending Review statement.
Government borrowing is expected to rise to its highest peacetime level to deal with the impact.
The Office for Budget Responsibility expects the number unemployed to reach 2.6 million by the middle of next year – a rate of 7.5 per cent, its highest level since the 2009 financial crisis.
This has resulted in “extraordinary measures to protect people’s jobs and incomes”, he said, confirming that the majority of public sector workers will have their pay frozen next year.
Business leaders will be relieved that the Treasury is resisting the temptation to hike taxes on enterprise for now, but will be concerned that Brexit didn’t merit a mention
But he did say that lower-paid public sector workers would be guaranteed at least a £250 pay rise next year.
The overseas aid budget is to be cut by about £4 billion and a new £4 billion “levelling up” fund will pay for upgrading local infrastructure across UK.
Jonathan Geldart, Director General of the Institute of Directors, said: “Today’s statement provided a sobering view of the challenge ahead, and funding for infrastructure and skills will be crucial to meeting that challenge.
While Sunak could not have been clearer as to the task the UK economy faces, his spending review seemed to mix a message of parsimony for some, and profligacy for others
“Just as significant was what the Chancellor didn’t announce. Business leaders will be relieved that the Treasury is resisting the temptation to hike taxes on enterprise for now, but will be concerned that Brexit didn’t merit a mention.”
Chirag Shah, CEO, Nucleus Commercial Finance said: “We’re pleased to see the Chancellor announcing ambitious spending plans, providing much-needed cash injections into the UK economy. After a challenging year protecting jobs is vital, and will help buoy spending supporting SMEs across the UK.
“The focus on increasing spending in local communities reflects the nation’s sentiment – we want to see our local areas, shops and high streets succeed. For UK SMEs, this will hopefully translate into renewed support from both government and through consumer spending.”
Jeremy Thomson Cook, Chief Economist at Equals Money said: “While Chancellor Sunak could not have been clearer as to the task the UK economy faces to overcome the economic damage wreaked by the pandemic, his spending review seemed to mix a message of parsimony for some, and profligacy for others.
“We didn’t expect comments on tax today, but if the OBR’s estimates are correct in that the UK will not recover to pre-Covid levels of output for two years, then the taxman needs to stay away from consumer incomes, corporate taxes and such like for at least that time; otherwise the recovery will be drawn out in a short sighted effort to ‘balancing the books’.”
And Seb Maley CEO of insuranmce specialists Qdos, added: “The Chancellor didn’t even acknowledge the gaps in the Coronavirus support in his speech, despite mounting pressure to tailor the help available.
“I find it remarkable that the government continues to ignore calls to provide millions of freelancers and small business owners with the support they clearly need. The Spending Review marked a golden opportunity to plug the gaping holes in the support packages, which continue to destroy the livelihoods of some of the UK’s most dynamic and important workers.”