Sunak to splash billions in spending review to shore up jobs

Rishi splashes the cash AGAIN: Sunak is to unveil billions more spending to shore up jobs amid Covid crisis despite fears OBR watchdog will warn on £400bn borrowing this year and 10% GDP fall – but foreign aid will be cut and public sector pay frozen

  • Rishi Sunak is set to unveil his spending review with billions of pounds more spending to shore up economy
  • Chancellor’s plans will be revealed alongside grim forecasts from Office for Budget Responsibility watchdog 
  • Fears that borrowing will hit £400billion this year and the unemployment rate could hit 8 per cent in mid-2021

Rishi Sunak will splash the cash one last time today as he desperately struggles to shore up jobs and businesses before vaccines finally end the coronavirus crisis. 

The Chancellor is set to pump billions of pounds into retraining the unemployed, as well as boosting infrastructure, the NHS and defence, in a bid to create a platform for recovery. 

But the backdrop for the Spending Review will be incredibly grim forecasts from the government’s fiscal watchdog, with fears borrowing will hit £400billion this year as the economy shrinks by 10 per cent – the worst recession in more than 300 years.

The jobless rate – currently around 4.8 per cent – could peak at 8 per cent next year, while the Office for Budget Responsibility will also give an insight into the ‘scarring’ from the pandemic in its first forecasts since March.

Despite growing optimism that scientific breakthroughs will mean a V-shaped recovery, experts believe there could be a 3 per cent long-term hit to growth – creating a £40billion hole in the public finances that will need to be filled with tax rises or spending cuts.

Mr Sunak has made clear that tax rises are not immediately on the horizon, saying jobs will be his ‘number one priority’. 

But he will today acknowledge the looming reckoning over the government’s spiralling debt pile – now well over £2trillion – by imposing a pay freeze on large parts of the public sector next year, and controversially slashing the foreign aid budget by around £4billion.

Pictured: The Chancellor Rishi Sunak works on his Spending Review speech in his flat above 11 Downing Street. Sunak will reportedly announce a cut to the foreign aid budget on Wednesday

The OBR will release its first forecasts for the economy since March – with the Bank of England previously predicting an 11 per cent downturn for this year, which would be the worst since 1609 

Unemployment was running at 4.8 per cent in the three months to September, according to the most recent ONS figures

The Bank of England has suggested unemployment is likely to peak at 7.75 per cent in the middle of next year, after Mr Sunak decided to extend the furlough scheme keeping many jobs on life support

Spending Reviews typically outline departmental budgets for three years, but the huge uncertainty created by coronavirus means that Mr Sunak will focus just on 2021-22. 

There will be exceptions, including for the Ministry of Defence, which has won a four-year settlement with an extra £7billion to help modernise the military and fix its persistent equipment funding chaos. 

In his Commons statement, the Chancellor will announce the launch of a three-year Restart programme, worth £2.9billion, which will help more than a million unemployed people get back into work.

FIVE FORMER PMs AND MALALA CRITICISE FOREIGN AID CUTS

Five former British Prime Ministers have now called on Boris Johnson to reconsider plans to slash foreign aid.

The group, Theresa May, David Cameron, Gordon Brown, Tony Blair and Sir John Major were joined by activist Malala Yousafzai who also criticised the plans.

Sir John told The Times the plan was morally wrong, while Mr Blair and Mr Cameron branded it a strategic mistake. 

Mrs May told friends she opposes the move, while Mr Brown thinks it risks damaging the UK’s reputation abroad, the newspaper reported.

Education campaigner Ms Yousafzai tweeted her opposition last night.

‘COVID-19 could force 20 million more girls out of school. To keep girls learning, we need leaders to prioritise education,’ she wrote.

‘@BorisJohnson & @RishiSunak: the U.K. pledged 0.7% in aid last year. When you announce spending priorities tomorrow, I hope you’ll deliver on that promise.’ 

There will also be £1.4billion promised to increase the capacity of Jobcentre Plus and a £375million skills package.

Other commitments are expected to include £3billion more to support the NHS, including £1billion to address the treatment backlogs built up while it was dealing with the Covid-19 crisis.

There will also be measures to support Boris Johnson’s ‘levelling-up’ agenda with the publication of the much-delayed National Infrastructure Strategy and investment across the UK’s regions and nations, including £1.6 billion for local roads.

At the same time however, the Chancellor will take the first steps towards rebuilding the public finances after government borrowing soared and economic activity ground to a halt due to the pandemic.

Spending on foreign aid is expected to fall to around £10billion next year for the first time in almost a decade, with the Chancellor abandoning the manifesto pledge to commit 0.7 per cent of national income.

Rather than making it a one-off cut, ministers will introduce legislation to allow spending to be kept at a reduced level for several years – or even permanently.

The target enshrined in law will be lowered to 0.5 per cent in 2021, with the option of keeping it at this level thereafter.

Whitehall sources insisted the decision on how long it will stay will depend on the economic recovery. The Government was last night consulting legal experts on the exact form of the legislation that will be used to make the change, which it plans to bring forward in the middle of next year.

It is understood Mr Sunak made the decision after coming under pressure from MPs in former ‘Red Wall’ seats won by the Tories from Labour at the last election.

But he has faced pressure to change his mind from senior Conservatives including David Cameron, former Scottish party leader Ruth Davidson and ex-foreign secretary Jeremy Hunt.

The Government may encounter difficulty getting the legislation through the Lords because it goes against its election manifesto commitment to spend 0.7 per cent of gross national income abroad.

Foreign aid spending has more than doubled in the past decade, with the Government reaching the 0.7 per cent target for the first time in 2013, before enshrining it in law two years later. The budget rose £645million to reach £15.2billion for the first time last year.

Both China and India saw their funding increase, even though they can both afford their own space programmes.

An average of 0.29 per cent GDP is given by the G7 nations, which include Germany and the US.

The aid budget was already expected to fall this year because of the reduction in the size of the economy. Foreign Secretary Dominic Raab had earmarked £2.9billion of cuts, reducing the expected spending from £15.8billion to £12.9billion.

According to official economic forecasts, aid spending would go back up to £14billion next year if the 0.7 per cent target was kept. Reducing it to 0.5 per cent will see spending slashed to £10billion.

Ms Davidson yesterday branded the proposed cut as a ‘counterproductive choice – morally, economically and politically’.

Mr Hunt warned: ‘This year, according to the World Bank, 100million more people will fall into extreme poverty. The Britain I know and love does not turn it back on such people – whatever our challenges at home.’

Nobel laureate and anti-poverty campaigner Kailash Satyarthi told the Prime Minister the rumoured reduction would be ‘immoral’.

David Cameron, Tony Blair and Archbishop of Canterbury Justin Welby have already opposed the move. In the Commons yesterday, Mr Raab insisted: ‘Our aid budget will remain at the absolute centre of the work we do as a force for good.’

The Chancellor’s spending review today will also reveal that pensioners will be billions of pounds poorer under an overhaul of inflation.

Around £1trillion worth of pension money is invested in Government bonds tied to the retail price index (RPI) measure of inflation.

More than 10 million pensions also rise in line with the rate every year. But RPI is expected to be abandoned in favour of a lower measure that would wipe £100billion off the nation’s retirement money.

It is thought that the consumer prices index including housing costs (CPIH), which is around 1 per cent lower, will replace RPI. Experts say the shake-up is an ‘inevitable catastrophe’ that will cost individual pensioners tens of thousands of pounds.

Meanwhile, business leaders have welcomed the moves to support jobs, but Mr Sunak is braced for a backlash from trade unions over an expected freeze on public sector pay – although NHS workers will be exempted.

It will include a new round of public sector pay restraint – with wages for more than four million workers capped or frozen altogether, with only front line NHS doctors and nurses expected to be exempt – while the Chancellor is also reportedly planning to scrap a planned 5 per cent increase in the national living wage.

The moves have angered unions who said public sector workers bore the brunt of austerity cuts after the global financial crash but Mr Sunak is expected to argue that is the private sector which has been hit the hardest in the pandemic.

Ahead of his statement, the Chancellor insisted he is not planning a return to ‘austerity’ and would continue to support the economy as it sought to recover from the fall-out from the pandemic.

The Bank of England downgraded its recent GDP estimates due to the resurgence of coronavirus and tougher lockdowns

The most recent ONS figures showed the economy bounced back in the third quarter, but it is still around 9 per cent smaller than pre-coronavirus, and the situation is expected to be worse in the current quarter. A larger percentage rise is required to recover falls in GDP, as the increase is from a lower base

The scale of the challenge was underlined by official figures that showed public sector debt had passed the £2trillion mark for the first time – taking it over 100 per cent of GDP.

Mr Sunak said: ‘My number one priority is to protect jobs and livelihoods across the UK.

‘This Spending Review will ensure hundreds of thousands of jobs are supported and protected in the acute phase of this crisis and beyond with a multibillion package of investment to ensure that no-one is left without hope or opportunity.’

Shadow chancellor Anneliese Dodds said the country was facing a ‘jobs crisis’ as a result of the Conservatives’ ‘irresponsible choices’ and economic mismanagement.

‘They clapped for key workers – but now they’re freezing their pay, and looking to scrap planned minimum wage increases for the private sector,’ she said.

‘That will hit people’s pockets and pull spending out of our small businesses and high streets when many are already on their knees.

‘We need a relentless focus on jobs and growth to get the economy back on its feet.’

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