The Chancellor delivered his 2020 Spending Review on Wednesday 25th November 2020. During the review, Sunak told MPs the economic emergency from the COVID pandemic has only just begun. He goes on to say there is the sacred duty to balance the books following the unprecedented borrowing requiredred to prop the UK economy up during the crisis.
Sunak announced the UK economy will contract by 11.3% in 2020. This is the highest fall in over 300 years. He goes on to say, “Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022. The economic damage is likely to long lasting. Long-term scarring means, in 2025, the economy will be around 3% smaller than expected in the March 2021 budget.
UK borrowing would be £394 billion. This is the highest in peacetime history and is 19% of the country’s GDP. UK borrowing is expected to rise further into 2021 to ensure the COVID vaccination programme has been delivered across the UK. This will need to take place until the virus is under control. Borrowing is projected to increase until the earliest 2026. Sunak mentions the UK’s debt would reach 97.5% of GDP in 2025/26
The extended furlough scheme to next March has saved around 300,000 jobs. It is expected to come to a conclusion in early 2021. Sunak expects unemployment to rise to 7.5% by Springtime 2021. This accounts for a significant 2.6 million people in the UK. He announced a further £4.3 billion support package to support the unemployed. This would include £1.4 billion of funding to increase the capacity of the Job Centre, plus a three-year £2.9 billion scheme to help the jobless in their search for a job.
The Private sector has been hit hard by wage cuts, unemployment and employers being furloughed, or work hours reduced. The Public sector, on the other hand, has seen a wage increase of 4% and much more job security. One million doctors, nurses and other NHS employees will get a further pay rise. 2.1 million public sector workers earning below £24,000 have been guaranteed pay rises.
The overall national living wage bill will increase to £8.91 per hour for the over 23’s.
Due to the of the extent support packages in place tax rises and spending cuts are imminent. Experts predict we will see the first of the tax rises announced in the Spring Budget, with increases to start in April 2021 We will therefore see these changes at the start of the 2021/2022 tax year. It is widely expected further increases can be expected in April 2022.
Tax rises are already in motion to some extent. Rushi Sunak has already given local authorities the option to increase council tax rates by 5%. Sunak has used this option whilst reducing overall central support to local authorities. We can expect to see council taxes rise by an average of £70 very soon.
It is expected we will see a combination of spending cuts and tax rises to put the public finances on a sustainable footing. Tax rises of more than £40 billion a year are inevitable to ensure the UK Government debt doesn’t spiral out of control. Analysts tax rise will continue until at least 2023.