The economic emergency caused by Covid 19 has only just begun, with Rishi Sunak, UK finance minister, warning of “lasting damage” to the UK economy and its future. The UK economy is expected to contract by 11.3% this year and not return to pre-crisis levels until late 2022. Official forecasts now predict the biggest economic downturn in 300 years.
The number of unemployed is expected to rise by 2.6 million by the middle of next year, and the national debt will rise to its highest level since the war to cope with the economic impact. Fewer jobs are expected to be lost this summer than forecast, but that will push the unemployment rate to 7.5%, the lowest in more than 30 years.
To safeguard jobs, the government subsidizes health care for workers who cannot work because of pandemics. An extension of the program until March next year would mean 300,000 fewer unemployed. Unveiling a spending review detailing how much is being spent on public services, he said the Government was facing an economic emergency.
Sunak said lower-paid public sector workers would be guaranteed at least a 250 per cent pay rise next year. The Chancellor said he could not justify a flat increase in executive pay when many in the private sector had cut their wages and hours during the crisis. He confirmed that all workers, except those earning less than £24,000, will have their pay frozen next year.
Anneliese Dodds, the shadow chancellor, criticised the pay freeze, saying: “Earlier this year the chancellor stood at his door and clapped off key staff. Today, the government has frozen many people’s salaries, dealing a blow to consumer confidence.
The minimum wage, which will be renamed National Living Wage, will rise by 2.2 per cent (19p) to 8.91p an hour, with the rate extended to people aged 23 and over. The spending report on the impact of the spending review on the pay of public sector workers and their families. A 25-year-old civil servant representing the PCS union said she was “deeply disappointed.” Having worked for various government agencies since graduating from university a few years ago, she said: “I feel let down.
Other rates have also been raised and, from next April, 16 and 17-year-olds will forget the old 2.5 per cent hourly minimum wage and the new National Living Wage.
Millions of pensioners will see their pensions undermined by planned changes to the way they are calculated. Sunak said the new 0.5 percent target, which would mean savings of about 4 billion pesos, was temporary and payments would be reviewed to see how much it would cost. Britain has also abandoned its pledge to spend between 0 and 7 per cent of national income on foreign aid to tackle the coronavirus crisis at home.
Sunak said the government had already spent 280 billion pesos to help the economy with the coronavirus. A government statement last week said an extra £55billion had been spent on measures to support the recovery.
Britain is expected to borrow £393billion over the next three years to fund the economic recovery. Borrowing is more than £100billion, 4 per cent of the country’s economic output, and includes billions of pounds helping people find work.
In recent years, the government has been able to borrow at very low interest rates, making its debt more affordable. It is currently financed by a combination of tax cuts, spending cuts, and tax breaks for the rich and private sector.
In the long run, the scar means the economy would be in a much worse position than expected in the March budget, according to the IMF.
The independent forecaster also warned that tax rises and spending cuts will be needed in the coming years to stabilise the UK’s mounting debt mountain. The OBR said: ‘The coronavirus pandemic has delivered the biggest peacetime shock on record to the global economy, while the latest constraints on Britain’s already faltering recovery have taken the wind out of the sails. How will Britain get its debt under control and how much will it cost? It said that “the subsequent and prolonged easing of the UK labour market this spring has led to a slowdown in employment growth in a country experiencing its worst recession since the Great Depression and the worst financial crisis since World War II.”
The end of state support is due early next year, with an end to state support for the NHS.
If 2020 has taught us anything, it is that assumptions can last as long as disposable face coverings. It will take longer for economic life to return to unhealthy health, and reviving employment prospects, investment, and consumption will require TLC. Official forecasts suggest that it will remain at the same level as Tier 3 restrictions until spring, meaning that December 2 will mark the end of the ban, with vaccines widely accepted in the second half of 2021.
Indeed, the Bank of England governor has said that the long-term impact of the deal could exceed the virus, and some economists believe the damage could be greater. According to the OBR, this could mean output rising by 1.5% by 2025, but if the official crystal ball becomes misty, output will be 3% lower in 2025 than previously expected.
Rishi Sunak must decide when to cut support for the recovering economy and begin repairing public finances without raising taxes. The extreme uncertainty underscores how onerous and costly such a decision can be.
House prices are expected to fall between 2021 and 2022, but what will happen to them and how much will they fall?
The OBR expects the recent market recovery to come to an end and more people will lose their jobs as government support programmes are cut. However, the end of the tax relief is expected to contribute to a slight rise in house prices in the first half of the next decade. House prices will continue to recover from 2022, “it added.