LONDON – The UK’s Treasury chief on Sunday dismissed speculation he was set to turn off spending that supported the economy during the COVID-19 pandemic, saying now was not the time to s ‘worry about record peacetime government borrowing.
Rishi Sunak used his appearances on British Sunday morning political talk shows to announce his intention to give the National Health Service an additional £ 3bn ($ 4bn) and pledge that support for businesses and workers affected by the pandemic will continue until spring.
The comments came amid reports that Sunak may announce a freeze on civil servants’ salaries when he presents his annual spending review to parliament on Wednesday. This sparked questions as to whether he was preparing to cut spending and raise taxes amid forecasts that government borrowing would hit £ 372 billion this fiscal year.
Sunak said the government was still focused on responding to the pandemic, with 750,000 people already losing their jobs and more likely to follow. He declined to comment on the pay freeze reports.
“It’s very sad to see,” he told the BBC. “It’s real, it’s not just the numbers on a graph, it’s people’s lives, it’s their livelihoods, their security that is affected. And that’s something we’re going to wrestle with for a while, unfortunately.
The issue of public spending is very sensitive in the UK, which experienced years of austerity after the 2008 financial crisis. The issue is even more difficult now as public sector workers including nurses, firefighters and social workers, have been the most affected by the fight against COVID-19.
Frances O’Grady, head of the Trade Union Congress, urged ministers to think twice about a wage freeze.
“If you want to motivate a workforce when we’re still facing a second wave of the pandemic – and we’re going to have a tough winter, we all know that – the last thing you do is threaten to reduce their salary, ”she told me.
The overall impact of the virus on public spending will become clearer this week when the Office of Fiscal Responsibility releases its latest forecast for public finances and the economy.
The UK is facing one of the deepest recessions in its history, with economic output at least 10% lower than last year, even after rebounding over the summer.
Public debt reached 101% of gross domestic product in October, the highest level since 1961.
“We thought what we saw during the financial crisis was huge, but it’s much, much more important,” Paul Johnson, director of the Institute for Fiscal Studies, told the BBC.
The government will eventually have to curb spending and raise taxes, but with interest rates at historically low levels and the pandemic still raging, there is no need to do so immediately, Johnson said.
“My opinion is that we won’t need to do much at all this year and probably next,” he told the BBC. “We’re probably looking at the middle years of the 2020s.”
Sunak clearly believes that the time for judgment is not yet here. But it does happen.
“One thing we know and have learned, this virus adapts and evolves, our ability to fight is that it adapts and evolves,” he told Sky News. “So there is huge uncertainty right now and it wouldn’t be fair to make long-term decisions right now.