Boris Johnson has pounced on "dire" predictions of coronavirus suffering, telling MPs that they were too negative because they were made before last week's vaccine breakthroughs.
The prime minister spoke about this when he addressed fearful backers who revealed the extent of the nation's problem after Rishi Sunak's spending review last night.
In dire forecasts yesterday, the Bureau of Budgetary Responsibility said debt is on track to hit a staggering £ 2.8 trillion by 2025. Just to halt an increase in the share of GDP will require a budget tightening of between £ 21 billion and £ 46 billion a year at this point – with the situation even worse if there is no post-Brexit trade deal.
However, the OBR's projections were made before Pfizer, AstraZeneca and Moderna showed their vaccines had high success rates, raising hopes that at least one would be approved for use within weeks and the others early next year.
The Chancellor asked how he was going to fill the black hole created by the crisis in public finances. Economic "scars" mean that the government will spend far more than it will bring in in the years to come.
But this afternoon the official spokesman for the Prime Minister opted for the so-called “tax freeze” from the 2019 Conservative Manifesto. It does not promise an increase in income tax, VAT, or social security contributions (NIC) before 2024.
"We remain committed to the promise of the manifesto," he said.
Extraordinarily, the prestigious IFS think tank has indicated that the OBR scenario is too optimistic as Mr Sunak has not budgeted any coronavirus spending beyond next year.
The Prime Minister, who will hold a press conference tonight, told Conservative MPs last night that the new measures would be "very tough".
Chancellor Rishi Sunak, pictured yesterday, is bringing massive sums of money into the economy, but was accused by IFS Director Paul Johnson of forgetting about Covid after 2021 and of not mentioning Brexit at all
It is projected that the government will borrow at least £ 100 billion in each year of the OBR forecast period
By 2025, the UK's mountain of debt will have reached a staggering £ 2.8 trillion – and still account for more than 100 percent of GDP
The national debt is expected to rise to 2.27 trillion pounds this year and grow to 105.2 percent of the economic size
Rishi Sunak's Spend Review: At a Glance
- The government has spent an estimated £ 280 billion this year to protect the country from coronavirus.
- The Office for Budgetary Responsibility (OBR) forecasts that the economy will shrink by 11.3 percent this year. This is the largest drop in production in more than 300 years.
- Borrowing for that year was £ 394 billion, the highest in peacetime.
- Rishi Sunak told MPs "this is an economic emergency" and the damage will be "permanent".
- “Long-term scarring” means that the economy in 2025 will be around 3 percent smaller than expected in the March budget.
- According to OBR, unemployment will peak at 7.5 percent in the second quarter of 2021 as 2.6 million people are unemployed.
- Public sector wage increases will be "halted" in 2021, but more than a million doctors and nurses will receive a raise, as will the worst.
- The 2.1 million public sector workers who earn below the average wage of £ 24,000 are guaranteed a wage increase of at least £ 250.
- The Chancellor said there were differences between public sector and private sector wages, adding that it could "not warrant significant general recognition for government employees"
- The national minimum wage will rise 2.2 percent to £ 8.91 an hour, including for those over 23.
- The budget for foreign aid, which was cut from 0.7 percent to 0.5 percent in 2021, will return to a higher level "if the budget situation permits".
- UK Infrastructure Bank founded in Northern England, which will start operations in the spring
- £ 4 billion leveling-up fund for local projects in cities across the country
In a round of interviews earlier this morning, Mr. Sunak refused to say how to deal with the crippling funding squeeze, admitting the situation was "unsustainable" but he would wait for "certainty" about the economic outlook.
"It would not be appropriate for chancellors – any chancellor – to speculate about future tax policy as this has real implications," he said.
"As you would learn from any Chancellor, they would talk about fiscal policy in a budget, and of course we will have one in the spring – we usually have it in the fall."
Mr. Sunak said the level of borrowing this year was "unsustainable" but "now is not the time to address it".
"Once we are done with that and have more certainty about the economic outlook, we need to look at how we can make sure we have strong public finances."
The OBR announced yesterday that borrowing will be close to £ 400 billion this year, with government spending exceeding £ 1 trillion for the first time as the damage caused by the coronavirus pandemic is expected to hit every UK household £ 2,500 Loss of income will cost.
Borrowing is projected to stay above £ 100 billion a year through the middle of the decade, and debt will continue to be worth more than annual GDP.
As long as interest rates remain low, servicing the debt should not be a problem.
However, the OBR warned that the economy would not recover to pre-pandemic levels until late 2022. Due to the hammer blow to key industries, UK plc will still be 3 to 6 percent smaller by 2025 than expected before the coronavirus hit.
This gap, between £ 20 billion and £ 46 billion, needs to be closed to prevent debt from spiraling out of control.
However, the IFS has questioned whether the Chancellor was too optimistic – because he stopped spending on fighting Covid-19 after the end of 2021.
Others asked why he didn't mention Brexit at all.
IFS Director Paul Johnson said, 'Rishi Sunak has spent truly amazing amounts of money this year and plans to continue doing so next year in response to Covid.
Sunak defends the public sector wage freeze
Rishi Sunak today made a staunch defense of the public sector wage freeze, stating that state employees would have received a 7 percent premium even before the coronavirus outbreak, and the gap is widening.
The Chancellor insisted that he could not fully protect government employees from pain given the massive job losses and income cuts for the private sector.
From March to September, private sector wages decreased 1 percent year over year, while public sector wages rose 4 percent.
Mr Sunak announced his spending review yesterday, announcing that wages for around 1.3 million public sector workers will be frozen for the next year, but NHS workers and those with the lowest wages will still receive a raise.
However, the news sparked anger among unions, while Labor accused ministers of "kicking the teeth" for state staff.
In a round of interviews earlier this morning, Sunak said public sector wages are "generally higher" than private sector wages.
He said that "inequality" existed before the coronavirus crisis and that "even when you factor in traits and pensions, there is a wage premium of at least 7 percent for the public sector".
He told Sky News, “That wage premium has certainly increased in the past six months as we've seen private sector wages rise 1 percent and public sector wages around 4 percent over the past six months .
“In addition, people in the private sector are losing their jobs, their working hours are being cut, they are being given leave – none of this happens in the public sector.
"Given the context, I couldn't justify a general pay increase for the public sector."
The unions have warned the Chancellor that there would be a chance of industrial action if he continued.
Meanwhile, Labor said capping the salaries for frontline workers would be an "absolute kick in the teeth" after their efforts during the coronavirus crisis.
“ However, this was a spending review in which he cut projected future spending and saved more than £ 10 billion a year from department spending plans for the next year and years to come.
& # 39; He did not allocate anything for expenses related to Covid even after next year. And these plans assume that the temporary hike in universal credit will not continue beyond this year. Each of these assumptions is questionable.
& # 39; It is more than likely that spending will be significantly higher than planned today, and therefore borrowing will be significantly higher than the £ 100 billion projected by the OBR in 2024-2025. Either that or we're back to a pretty tough couple of years or major tax hikes. & # 39;
The Chancellor unveiled his crucial spending review, stating that billions of pounds are being spent getting the unemployed back to work and strengthening infrastructure, the NHS and defense to create a platform for recovery.
In bloody news of the problems ahead, when he announced that the immediate response to the crisis had cost £ 280 billion, Sunak told Commons, "Our health emergency is not over and our economic emergency has only just begun."
All hopes for a "V-shaped" recovery from the pandemic went out of the window with the assessments of the OBR.
While the Watchdog expects production to have slumped 11.3 percent this year, it will only grow 5.5 percent next year, up 6.6 percent in 206 and 2.3 percent in 2023. Susannah Streeter, senior analyst at investment platform Hargreaves Lansdown, said: & # 39; This is a brutal assessment of the economic damage that Covid-19 has wreaked.
"But desperate times need desperate action, and sustainable government spending is critical to helping the economy emerge from the abyss."
A beam of light was included in the OBR projections – it was predicted that fewer people would lose their jobs than was forecast in the summer. The watchdog expects unemployment to peak at 7.5 percent by June next year. However, this still means that around 2.6 million people are unemployed.
Mr. Sunak said of yesterday's spending review, which set out the next steps for the country's finances, "Our health emergency is not over and our economic emergency has only just begun."
The pandemic will permanently "scar" the economy and blow up a gaping hole in public finances, an official watchdog warned yesterday.
In a dire series of forecasts, the Bureau of Budgetary Responsibility said national production will shrink 11.3 percent this year – the largest decline in three centuries. It won't return to its pre-virus levels until late 2022.
According to the central forecast, growth will return next year, but there it will take until the end of 2022 to reach pre-pandemic levels
The Rising Cost of Eat Out To Help Out: Rishi Sunak's taxpayers have £ 849 million
Rishi Sunak's Eat Out To Help Out program in support of hospitality businesses cost taxpayers £ 849 million after a surge in budget, shock figures showed today.
The Treasury Department estimated the program to offer a meal discount to encourage people to go out for lunch and dinner in August would cost £ 500 million.
But that mark was exceeded by 70 percent after more than 49,000 companies filed claims for more than £ 160 million meals, statistics from HM Revenue and Customs showed today.
The majority of claims – 55 percent – were made by restaurants, with 28 percent of meals being served in pubs.
The government data showed that the number of meals discounted by the system and the total value of entitlements increased each week as more people took up the offer each week before it ended.
It is believed that an astonishing 36 million meals were eaten on Bank Holiday alone to bring the price down for good.
It also found that customers received an average discount of £ 5.24 per meal they used.
Of the claims made, 93 percent came from small businesses with only one participating point of sale. They made up 52 percent of the total discount.
Less than 1 percent of the claims came from companies with more than 25 points of sale, but those companies accounted for 34 percent of the meals requested and 27 percent of the total rebate requested.
The three years of lost growth will lower living standards and increase unemployment, he added.
By the end of the OBR's forecast period in 2025, the economy will still be 3 percent below expected if the pandemic had not occurred.
The permanent “scarring” is caused by companies giving up their investments, others collapsing completely, and workers getting by on lower wages.
With national debt at its highest level since the war, national debt will continue to rise over the next five years, reaching £ 2.8 trillion by 2025/26.
The OBR's main predictions were based on a vaccine that did not become generally available until mid-2021 and severe restrictions that remained in place until then.
The watchdog admitted last night that he wrote his predictions before the news of the AstraZeneca rush broke.
This means that the best-case scenario, in which a vaccine will be launched from next spring with fewer restrictions until then, is now more likely.
Assuming this, the economy could return to its pre-virus peak by the end of 2021 and scarring could be avoided.
The OBR said: & # 39; The coronavirus pandemic has delivered the greatest peacetime shock to the global economy.
& # 39; The UK economy has been hit relatively hard by the virus and the public health restrictions needed to combat it.
& # 39; The virus has also weighed heavily and increasingly on public finances. In our key forecast, revenue this year will be £ 57 billion lower and spending £ 281 billion higher than last year. & # 39;
National debt will be £ 394 billion this fiscal year, which is 19 percent of national income.
This is the highest level since 1944-1945 and close to the high of 27 percent in World War II. The Treasury Department will continue to borrow £ 100 billion a year at the next election in 2024.
The national debt is expected to rise to 2.27 trillion pounds this year and grow to 105.2 percent of the economic size.
Mel Stride, Tory chairman of the Commons Treasury Committee, said tax hikes were inevitable to fill the huge gap in public finances.
He urged Chancellor Rishi Sunak not to make any major decisions until economic activity recovers.
The MP added: “The government has done a good job of getting us through this crisis. However, some of the expected tax decisions might feel uncomfortably close to the choice. & # 39;
Rishi Sunak will have to find £ 40 billion a year in tax hikes and spending cuts by the middle of the decade if he is to balance the books after the coronavirus crisis, says IFS as it warns the UK it is in "uncharted territory"
Rishi Sunak will have to find £ 40 billion tax hikes and spending cuts annually through the middle of the decade to restore balance to national finances, the Institute for Fiscal Studies' esteemed think tank warned today.
The Chancellor said at the spending review yesterday that "Britain's economic plight has only just begun" as official forecasts showed the economy will contract 11.3 percent in 2020 due to the coronavirus crisis.
This is the largest economic decline in 300 years. Ministers are well on their way to borrowing a staggering £ 394 billion this year to keep the country alive – the highest amount ever recorded in peacetime.
The government's spending watchdog, the Budgetary Responsibility Bureau, suggested in its key forecast that Mr Sunak would have to find £ 27 billion in tax increases and spending cuts to offset the books.
But IFS chief Paul Johnson said he believed the number could be significantly higher, arguing the chancellor was likely overly optimistic about some of his plans.
Mr Johnson said he believes Mr Sunak will end up having to spend more on public services, coronavirus response and welfare than he pointed out.
The think tank chief said the UK's finances were in "completely unknown territory" but predicted that the long-term effects of the pandemic will be "far less painful than the effects of the financial crisis".
Paul Johnson, director of the Institute for Fiscal Studies, said Rishi Sunak may have to find £ 40 billion tax hikes and spending cuts by the middle of the decade if he is to offset the books
Mr. Sunak has refused to take advantage of any future tax increases and has insisted that they be a matter for a future budget this morning
Mr Johnson said government spending and borrowing during the coronavirus crisis mean the UK economy is in "completely unknown territory".
Mr Johnson said in a briefing today that he was not convinced of the central OBR scenario of how the next five years might play out.
He said the spending review is "pretty tough" as public spending without Covid is likely to fall by more than £ 10 billion in the next year and in subsequent years.
Mr Johnson said it was "not apparent that either the need or appetite for public spending has decreased since March" and that "I would honestly be most surprised if those plans were followed up".
He also questioned the Chancellor, who allocated £ 55 billion for the government's coronavirus response the next year, but "exactly zero for years to come".
He said he wouldn't bet on the UK not having to spend any money on Covid-19 issues beyond next year.
He also suggested that the government might be forced to reverse a decision not to extend a temporary appreciation of the universal credit.
He said, “When you sum up this pressure, my central scenario would include at least one more percent of national income in the years 2024 to 2025, and then even given the perhaps relatively innocuous central economy scenario outlined by the OBR.
"In that case, if the Chancellor wanted to target a current budget balance, he would ultimately need two percent of the national income tightening – around £ 40 billion today."
Mr. Sunak has refused to resort to possible tax increases and this morning insisted that "future fiscal policy" would be a matter for a future budget.
The Chancellor told MPs yesterday that the "long-term scars" of the coronavirus crisis would mean that the economy in 2025 will still be around three percent smaller than expected in March this year.
Mr Johnson said the economic damage the pandemic has wreaked on the nation's finances was "record breaking, breathtaking, vast" and the UK is now in "completely unknown territory".
But he said there was "a need to calm down" as the long-term effects are unlikely to be as dire as those caused by the 2008 financial crash.
He said, "Of course it's not good news, but the central OBR scenario only has a long-term impact of three percent on the size of the real economy."
He added: “Now, an economic loss of three percent is clearly painful, especially after such a long period of poor income growth and especially given the success that Brexit has suffered.
"But it's far less painful than the effects of the financial crisis."
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