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Economic emergency just begun, warns Rishi Sunak with Spending Review

LONDON: UK Chanellor Rishi Sunak on Wednesday announced a public sector pay freeze and a cut to foreign aid spending as he warned that the “economic emergency” triggered by the COVID-19 pandemic has only just begun as the country battles soaring debt and unemployment.

In a Spending Review to lay out expenditure plans for the next year in the House of Commons, the finance minister told the parliamentarians the UK’s Office for Budget Responsibility (OBR) expects unemployment to rise to a peak of 2.6 million people next year. The OBR’s “sobering” forecast also shows an 11.3 per cent contraction in the UK economy this year – the largest fall in output for more than 300 years.

“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,” said Sunak.

“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,” he said.

“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 lasting. Long-term scarring means, in 2025, the economy will be around 3 per cent smaller than expected in the March budget,” he added.

The minister, who has been leading the UK’s economic response to the pandemic, said the government had this year provided 280 billion pounds to battle the COVID-19 crisis, with an initial 18 billion pounds already earmarked for next year for spending on personal protective equipment, testing and vaccines.

He set out the Boris Johnson led government’s three priorities for the spending review as protecting people’s lives and livelihoods, investing in public services, and delivering infrastructure funding to “level up and spread opportunity” across the UK.

A new 4 billion pounds “levelling up” fund will give local areas the chance to bid for funding for local projects and a 4.3 billion pounds package of support will help the jobless find work. This includes a new three-year 2.9 billion pounds Restart Scheme to help one million unemployed people in their job search – alongside 1.4 billion pounds of new funding to increase Job Centre Plus capacity.

To help people with their finances, the minister also announced an increase in the National Living Wage, by 2.2 per cent to 8.91 pound an hour from April 2021, likely to benefit around two million of the lowest paid.

Reflecting some of the other tough measures, Sunak abandoned the ruling Conservative Party manifesto commitment to fund the foreign aid budget at the equivalent of 0.7 per cent of gross national income, cutting it down to 0.5 per cent.

This will ensure the UK remains one of the largest overseas aid donors in the world, his Treasury department said.

UK public finances on an unsustainable path, says Finance Minister Rishi Sunak

LONDON: British finance minister Rishi Sunak said on Thursday that the path for the public finances set out by official forecasters on Wednesday was not a sustainable one, the closest he has come to acknowledging that taxes will need to rise.

“The forecasts that were set out yesterday show us on a path where that (borrowing and debt) continues to be at a very elevated level, so that’s not a sustainable position,” Sunak told the BBC.

Sunak declined to commit specifically to tax rises, saying any decision would need to wait for his annual budget statement due early next year.

Previously he has said that hard choices would need to be made on the public finances after the pandemic.

“Once we get through this and we have more certainty about the economic outlook, we’ll need to look at how we can make sure we have a strong set of public finances,” he added on Thursday.

Britain’s Office for Budget Responsibility forecast on Wednesday that the budget deficit would fall sharply to 7.4% of gross domestic product in the 2021/22 financial year from 19.0% this year, a record 394 billion pounds in cash terms.

The headline measure of public debt will begin to fall as a share of GDP from 2024/25.

However, a lower but less volatile measure of debt – which excludes temporary lending to commercial banks by the Bank of England – is forecast to keep rising over the next five years.

The OBR said Britain’s government would need to find 29 billion pounds – just over 1% of GDP – to balance day-to-day spending with tax revenues by the end of the forecast period.

Record-low interest rates made the high level of debt affordable for now, but Britain was becoming more vulnerable to any unexpected rise in global interest rates, it warned.