Rishi Sunak today dealt a major blow to poor workers and benefit claimants as he warned: “Our economic emergency has only just begun”.
The Chancellor raised the minimum wage by just 19p an hour and 2million people’s benefits by 37p a week in April as he started to pay for the pandemic.
Millions of public sector workers – all those who earn over £24,000 and don’t work in the NHS – will also have their pay frozen for a year from April 2021.
Foreign aid is also suffering around a £4bn cut as the Tories smash their manifesto pledge to commit 0.7% of GDP – instead spending 0.5%.
Grim-faced Mr Sunak declared: “At a time of unprecedented crisis, government must make tough choices.” He added: “Our health emergency is not over and our economic emergency has only just begun.”
The austerity measures come despite the top Tory plunging billions into the economy to pay for the ongoing costs of Covid-19.
He revealed the government has now committed £280bn to get the UK through coronavirus – and public services Covid funding will be £55bn in 2021/22.
That includes billions on schools, defence, roads and infrastructure, the NHS, councils, rough sleepers and more.
As a result Britain’s borrowing is now the highest in peacetime history – but it won’t be enough to stop the worst hit to the economy in 300 years.
So what did the Chancellor announce? Here’s an at-a-glance guide.
The full scale of the coronavirus crisis
The Office for Budget Responsibility, the government’s watchdog, released apocalyptic forecasts about the impact of coronavirus.
They laid bare that Britain’s borrowing is now the highest in peacetime history – £394bn this year, £164bn next year, and £100bn or over for three more years.
That means underlying debt will continue rising every year to 97.5% of GDP by 2025/26. Yet it won’t be enough to stop a tide of unemployment.
Unemployment is set to rise to a peak of 7.5% or 2.6million people by the second quarter of 2021.
And Britain’s economy will have contracted this year by 11.3% – the largest fall in more than 300 years.
It is not expected to return to pre-crisis levels until fourth quarter of 2022
“Long-term scarring means, in 2025, the economy will be around 3% smaller than expected in the March Budget,” Mr Sunak added.
Minimum wage rise of just 19p
Britain’s lowest earners will receive a pay rise of just 19p an hour next year, the Chancellor has announced.
Workers on the ‘National Living Wage’ – the minimum wage for over-25s – will get a 2.2% hike, Rishi Sunak said, in a u-turn on the 49p an hour hoped for earlier this year.
However, in a silver lining, he said the rate for over-25s will now include those aged 23 and over too from April – as previously promised by the Tories.
This means 23 and 24-year-olds who are currently on £8.20 an hour will see their pay jump by 71p to £8.91.
The minimum wage – which applies to those aged 16 and over – will also rise from next spring.
A pay freeze for 4million workers in 2021
The Chancellor realised the worst fears of almost 4million workers by confirming their pay will be frozen next April.
Updating the country on the bleak outlook for the British economy, the Tory Chancellor attempted to play divide and rule with the frontline workers who kept Britain safe through the pandemic.
He confirmed that while nurses, doctors and others in the NHS will get a pay rise, other public sector workers will not – unless their pay is under £24,000.
The pay freeze includes teachers, Armed Forces, police, Whitehall civil servants, council and government agency staff.
The UK has 5.5million public sector workers, of which just under 1.8million work in the NHS. Mr Sunak said 2.1million public sector workers earn less than £24,000, which suggests up to 2million remaining will get a pay freeze in April.
Mr Sunak previously said departments should show “restraint” and ”retain parity with the private sector” – where wages have tumbled – to ensure things are “fair”.
Yet millions of public sector workers are still recovering from seven years of pay freezes and caps under Tory austerity.
It’s thought 38% of public sector workers earn under the £24,000 threshold. Officials insisted more than half will get some kind of pay increase due to performance and progression pay. But Treasury sources could not say how many will see a pay freeze.
A benefits rise of just 37p a week
Millions of people’s benefits will rise by just 37p a week in April.
So-called ‘legacy’ benefits as well as those for carers and some other payments will rise by only 0.5%, the latest rate of CPI inflation, for 2021/22.
That means a rise of just 37p a week to the £74.35 standard rate of Jobseekers’ Allowance or sickness and disability benefit Employment and Support Allowance.
Those benefits together are claimed by around 2million people, many of them sick or disabled. They include some of the most vulnerable people in society.
The rise for children and under-25s looks set to be even smaller, and the separate Carer’s Allowance looks set to rise by just 34p.
It comes despite Universal Credit having been raised by £20 this year, and the state pension going up by 2.5%.
The tiny rise is likely to prompt alarm from charities and campaigners – and it also widens the gap between ‘legacy’ benefits and Universal Credit.
Universal Credit was raised by £20 a week in April 2020 but no such rise was given to people on legacy benefits.
There is a separate campaign ongoing for the government to keep the £20 boost to Universal Credit in April, when it automatically comes to an end.
Work and Pensions Secretary Therese Coffey today said a decision has not yet been made on whether to keep the £20 UC boost.
A £2.9bn ‘Restart’ scheme to help the long-term unemployed
The Spending Review confirmed a £2.9bn ‘Restart’ programme for jobs, to be run by the DWP.
People out of work for over 12 months will be provided with “regular, intensive jobs support tailored to their circumstances.”
The Treasury says the scheme will “help more than one million unemployed people look for work”.
But of the £2.9bn, only £400m will be available in 2021/22, the first of the three years. And barely any other details are available.
There will also be £1.4bn to help fulfil existing pledges to double the number of work coaches in jobcentres.
Aid spending slashed by £4bn
Britain’s foreign aid budget will temporarily slashed in a move that would cut off billions of pounds to the world’s poorest countries.
The Chancellor confirmed plans to cut foreign aid spending from 0.7% to 0.5% of national income – more than £4billion.
That is on top of a £2.9bn cut to expected spending that was announced due to GDP being lower than in previous years.
Previous Prime Ministers stood by the pledge through thick and thin as an emblem of Britain’s soft power, and Boris Johnson had claimed he would too.
He wrote in the 2019 Tory manifesto: “We will proudly maintain our commitment to spend 0.7% of GNI on development.”
Officials are refusing to rule out the aid spending cut lasting more than one year.
Investment and infrastructure – including £1.6bn on roads
The Chancellor announced various boosts to infrastructure including £1.6bn for local roads in 2021-22 to tackle potholes, congestion pinch-points and other upgrades.
The government also was set to publish its National Infrastructure Strategy alongside the spending review with a wide-ranging brief on transport, housing and digital infrastructure.
And the Treasury’s ‘Green Book’ rules on value for money were due be torn up – with more focus on “the consideration of regional impacts that policies have on places.”
That means a bid to fulfil the pledge to “level up” spending in the Midlands and North.
The government said it would publish the terms of the UK Shared Prosperity Fund, which “will target funding at left-behind places and people in need, including towns, coastal communities and former industrial heartlands” – replacing funds which before now came from the EU. This will include £220 million next year.
Schools spending in England already extends up to 2022−23, but the IFS had suggested they would receive extra funds for “catch-up learning”.
Rishi Sunak said the schools budgets will increase next year by £2.2bn.
£3bn for the NHS
NHS England already has a day-to-day funding settlement running up to 2023−24. But the Chancellor still announced £3bn for the NHS in the spending review.
Of that, £1.5bn will address “existing pressures” in the NHS, £325m will help replace older screening equipment for conditions like cancer, and “hundreds of millions” will go on mental health services.
£1bn will be spent on tackling the coronavirus backlog directly – paying for up to a million extra checks, scans and operations for those who have had their treatment delayed since March.
Another £220m on Brexit
The transition period ends on December 31 and just six weeks out, we still don’t have a trade deal with the EU.
That will mean a huge economic shock as tariffs and customs paperwork kick in on the border, at ports like Dover, and on billions of everyday goods.
The Chancellor announced another £220m for borders and immigration to help with their increased workload – on top of roughly £8bn of Brexit prep already.
The money would also go towards new technology to “streamline the border experience and strengthen security”.
This could mean more automatic passport gates, fingerprint or eye scan data and “analytics” to track people through the system.
£16.5bn for defence
The Ministry of Defence, which faced a £14bn black hole, was exempted from the spending review and given a four-year £16.5bn deal.
It will allow investment in AI, cyber warfare and a new ‘Space Command’ – though some outdated equipment will have to be ditched.
The actual Integrated Review wasn’t unveiled as part of the Spending Review, but it’ll be a useful comparison to other areas that are less generous.
A counter-terror operations centre
The Spending Review committed “tens of millions” to a new Counter Terrorism Operations Centre.
This is designed to unite police, intelligence agencies and the criminal justice system at a “state-of the-art facility” in London.
Details including the final budget and location are scant but the Treasury claims it’ll be operational by 2026.
£275m for strained courts
The Treasury pledged a £275m funding boost to raise court capacity after the pandemic created a backlog.
The funding will also “support the system to bring more criminals to justice”, though the details are a bit slim.
There will also be £40m for victims and support services, of which £25m is new money, the Treasury said.
Another £151m to help rough sleepers
The Treasury said there will be a £151m package to help rough sleepers off the streets in 2021/22.
The money will be used to fund the Rough Sleeping Initiative, which supports the homeless and their local councils.
There will also be help for people at risk of homelessness when they leave prison.
Officials claim this is a 60% rise in funding compared to what was announced in 2019.
£29m for the ‘Festival of Brexit Britain’
The Treasury confirmed £29m to help fund ‘Festival UK’ in 2022. Officials described this as “a series of show-stopping events to showcase the best of British art, culture and tech”, to “boost national pride and celebrate what it means to be British”.
Theresa May unveiled the plan in 2018, when it was dubbed a ‘Festival of Brexit Britain’.
There will also be £5m for the Queen’s Platinum Jubilee celebrations across a four-day weekend in 2022. And £118m will go towards the Commonwealth Games, due to be hosted in Birmingham in summer 2022.
EU funding replacements, councils and the devolved nations
Mr Sunak said total domestic UK-wide funding will “at least match EU receipts” while the “core health budget” will grow by £6.6 billion next year.
He also said the settlement will allow local authorities to increase their “core spending power by 4.5%”, noting: “Local authorities will have extra flexibility for council tax and the adult social care precept – which together with £300m of new grant funding gives them access to an extra £1 billion to fund social care.
“This is on top of the extra £1 billion social care grant we provided this year, which I can confirm will be maintained into next year.”
The Chancellor said that through the Barnett formula, Scottish Government funding will increase by £2.4billion and Welsh Government funding by £1.3billion, with £0.9 billion for the Northern Ireland Executive.