global economy

Virus-hit UK keeps spending taps open despite soaring debt

Agence France-Presse
Virus-hit UK keeps spending taps open despite soaring debt

SPENDING REVIEW. Britain's Chancellor of the Exchequer Rishi Sunak carries a copy of his Spending Review 2020 as he leaves 11 Downing Street in central London on November 25, 2020, before heading to the House of Commons.

Photo by Tolga Akmen/AFP

(UPDATED) 'Our health emergency is not yet over and our economic emergency has only just begun,' British finance minister Rishi Sunak tells parliament

Britain on Wednesday, November 25, unveiled plans for more massive state spending despite soaring debt on coronavirus fallout, including pay rises for nurses to support the ravaged economy as the nation embarks on its post-Brexit future.

Announcing that the United Kingdom economy was set to contract by 11.3% this year, the worst performance in more than 3 centuries, finance minister Rishi Sunak told parliament that investment was vital to aid the economic recovery and save lives.

The economy, which tanked into a historic recession owing to pandemic fallout, was forecast to rebound by 5.5% next year and by 6.6% in 2022.

But chancellor of the exchequer Sunak said the nation’s gross domestic product (GDP) was not expected to return to pre-virus levels until the 4th quarter of 2022.

Britain has been one of the worst-affected countries in the world in the COVID-19 outbreak, registering almost 56,000 deaths.

“Our health emergency is not yet over and our economic emergency has only just begun,” Sunak commented on Wednesday as he unveiled the latest spending review of Prime Minister Boris Johnson’s government.

“So our immediate priority is to protect people’s lives and livelihoods,” the finance minister added.

‘Difficult to justify’

With UK public debt set to soar further owing to Wednesday’s spending commitments and the huge sums already paid out to support the economy during the pandemic, Sunak said “sticking rigidly” to the country’s overseas aid budget was “difficult to justify to the British people.”

He said the aid budget would be reduced to 0.5% of gross national income, and return to 0.7% “when the fiscal situation allows.”

Sunak’s updates came a week before England ends a second lockdown aimed at curbing a fresh wave of coronavirus infections.

The review was presented also with Britain yet to strike a post-Brexit trade deal with the European Union (EU) ahead of a transition period ending December 31.

The government’s forecasts, calculated by the Office for Budget Responsibility watchdog, said a no-deal would slash 2% off Britain’s GDP, or total output, in 2021.

Sunak meanwhile confirmed that the National Health Service would receive a boost totaling £3 billion ($3.9 billion, 3.3 billion euros).

The military is to receive billions of pounds extra over 4 years in the biggest such investment since the end of the Cold War, as Britain positions itself for its post-EU future.

In total, the government plans to spend £55 billion on public services linked to the coronavirus next year, it announced on Wednesday.

Recent official data shows UK state debt has exceeded £2 trillion for the first time – and the government is set to have borrowed 394 billion pounds in 2020, taking total borrowing  above 100% of GDP.

With public borrowing “eye-wateringly high,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, warned that “big tax rises look inevitable.”

‘Economic emergency’

At the start of November, England effectively shut down for the second time this year to curb spiking virus infections and deaths.

To help cushion the blow, the government rolled out a multibillion-pound support package by extending its furlough jobs scheme until the end of March 2021.

“This is an economic emergency – and that is why we have taken and continue to take extraordinary measures to protect people’s jobs and incomes,” Sunak added on Wednesday.

He said that while the government would give pay rises to more than one million nurses, doctors, and others working for the state health service, the offer could not be extended to other public sector workers.

“Coronavirus has deepened the disparity between public and private sector wages,” Sunak said.

“And unlike workers in the private sector who have lost jobs, been furloughed, seen wages cut and hours reduced – the public sector has not.”

The government’s mammoth package is being coordinated with the Bank of England, which is pumping huge amounts of cash into the economy to support businesses and has slashed its interest rate to a record-low 0.1%. –

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