UK Chancellor 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.
