During his lunchtime announcement, Chancellor Rishi Sunak told the country that “…the coronavirus health emergency is not over, and the economic emergency has only just begun.”
The Chancellor explained that his immediate goal is to prioritise jobs, businesses and public services. In doing so, governmental borrowing for 2020/21 will reach almost £400bn, some 19% of GDP, the largest level of borrowing in peacetime.
There was no sugar coating the OBR forecasts. The economy is expected to contract by 11.3% in 2020, the largest decline in 300 years. Sunak was clear that there will be “long-term scarring” as far as 2025. It is expected that it will take until the end of 2022 before the economy returns to its pre-pandemic size.
GDP is expected to grow by:
• 5.5% in 2021
• 6.6% in 2022
• 2.3% in 2023
• 1.7% in 2024 and 1.8% in 2025
Borrowing will remain at £164bn for 2021 and around £100bn for the following 4 years.
The Chancellor made it clear that there are tough times ahead and difficult decisions to be made. He explained that unemployment will rise to 2.6 million by the second quarter of 2021 and he cannot justify a significant across-the-board pay increase for public sector workers. Instead, his aim was to ensure fairness between the public and private sectors.
The spending proposal highlights were:
• Pay rises for the public sector will be paused next year, with an exemption for more than 1 million nurses and doctors in the NHS
• 2.1 million public sector workers who earn below the median wage of £24,000 will be guaranteed a pay rise of at least £250
• The national living wage will be increased to £8.91 an hour and extended to over-23s.
• The core health budget will grow by £6.6bn, including an extra £3bn for the NHS to cope with Covid pressures, and £1bn to tackle treatment backlogs and enable delayed operations to go ahead
• The chancellor says this will help to hire 50,000 new nurses
• A total of £18bn is to be spent on Covid testing, PPE and vaccines
• £500m for mental health services in England
• £300m extra grant funding for councils for social care
• The schools budget will increase by £2.2bn
• A new £4.6bn package to help people back to work
• £2.6bn for Restart scheme to support those out of work for 12 months
• £1.6bn for the Kickstart scheme to subsidise jobs for young people
• £375m skills package, including £138m to provide Lifetime Skills Guarantee
• £3bn in extra funding for local authorities, representing a 4.5% increase in spending power
• £250m for councils to tackle rough sleeping
• £4bn over four years to provide 18,000 new prison places
• More than £400m to recruit 6,000 new police officers by the end of 2022.
Other measures included;
• The introduction of a new £4bn ‘levelling up’ fund to finance local infrastructure improvement projects
• New UK infrastructure bank to be established in North of England
• Business rates multiplier will be frozen in 2021-22
• Overseas aid budget to be cut from 0.7% to 0.5% of total national income and there will be a reduction of about £5bn in support for tackling global poverty
• A multi-billion pound increase in annual defence spending over the next four years, creating 40,000 jobs
• New centre dedicated to artificial intelligence
• National cyber force to counter terrorists, organised crime groups and hostile states
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