Pandemic has posed ‘unprecedented challenge’ to UK and world economies

The Chancellor of the Exchequer Rishi Sunak has outlined the government’s spending plans to Parliament for the next financial year, which focused mainly on the response to Covid-19, jobs, public services, and infrastructure

The Chancellor said the coronavirus pandemic has posed an unprecedented challenge to the UK economy and to economies around the world.

He went on to say that the restrictions needed to limit the spread of the virus, meant that people could not live their lives as normal, and many businesses saw significant falls in turnover or were forced to close temporarily.

Output fell by 24 per cent between February and April this year and as a result the government introduced exceptional UK-wide support measures to protect jobs and incomes.

Once restrictions were eased from late spring onwards the economy grew rapidly and by September the Gross Domestic Product was around eight per cent below the pre-pandemic level.

However, with greater restrictions being reintroduced during the autumn and continuing now into the winter, the Office for Budget Responsibility forecasts the GDP will fall by 11.3 per cent in 2020 (the biggest decline in 300 years) before returning to growth in 2021.

Economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022 and unemployment could reach 2.6 million by next spring.

There will be a budget deficit of £394 billion this year (the highest in peacetime) and remain at £164 billion next year.

So, how do we pay for all this debt? Well, that was not really revealed and will not be announced until the Budget in the spring at the soonest.

The Chancellor also announced that pay rises for the public sector will be paused next year, with an exemption for more than one million nurses and doctors in the NHS, but 2.1 million public sector workers who earn below £24,000 will be guaranteed a pay rise of at least £250.

He also said the government remains committed to continuing to support the low paid and that the National Living Wage would be raised by 2.2 per cent to £8.91 an hour and extended to over 21’s from April 2021.

The temporary welfare measures including a £20 increase to the Universal Credit standard allowance will be kept in place until spring 2021.

Within the health and social care sector £18 billion will be spent on Covid-19 testing, PPE and vaccines in 2021 and the core health budget increased by £6.6 billion. He also re-iterated the target set to hire 50,000 new nurses.

Rishi Sunak then came to Brexit and announced that the OBR estimates the UK economy may shrink by a further 2.1 per cent, on top of the projected impact of Covid-19 if there is no EU trade deal.

They also warn of “various temporary disruptions to cross-border trade” if current talks end without an agreement. Well I guess we will know the outcome of these talks in the coming days.

A further announcement was that the overseas aid budget was being cut to 0.5 per cent in 2021, but to return to 0.7 per cent when the fiscal situation allows. The Chancellor said that during a “domestic fiscal emergency” sticking rigidly to spending the international commitment of 0.7 per cent on overseas aid, is difficult to justify to the British people.

He then went on to announce how the government were going to try and level up the economy across the United Kingdom. Investment in infrastructure totalling £100 billion next year, with plans to deliver the highest levels of sustained investment in 40 years.

There are plans to launch a new infrastructure bank, with its headquarters in the North of England along with a new £4 billion fund for “levelling up”, to which any local area can bid for the funding of local projects.

There were further announcements for business, with the business rates multiplier frozen in 2021/22 along with packages to help people back to work and to support those who have been out of work for 12 months. A £1.6 billion package for the kickstart scheme to subside jobs for young people was also announced.

An additional £56.5 million in 2021/22 will be provided to support the vitality and entrepreneurship of the UK by expanding the British Business Bank’s Start-up Loans to meet the increase in demand and support entrepreneurs to start and grow their businesses

The devolved administrations will also get their share of this money, with a £4.7 billion increase, including a £2.6 billion fund to boost CovidOVID-19 recovery. Based on the Barnett spending formula, Scotland will receive £2.4 billion, Wales £1.3 billion and Northern Ireland £900 million.

South Wales Argus | Business