UK to borrow £394bn this year, Chancellor confirms

The Chancellor has announced that the UK is forecast to borrow £394bn this year, a figure equivalent to 19% of the UK GDP.

Rishi Sunak told the House of Commons it is “the highest recorded level of borrowing in our peacetime history”, as he unveiled the government’s spending plans for the coming year.

As part of his Spending Review, Sunak said there will be £280bn in spending “to get our country through coronavirus”.

He outlined plans for public sector pay and confirmed reports that one million NHS workers are to receive a pay rise next year. The Chancellor added that to protect jobs, pay rises in the rest of the public sector “will be paused next year”, although he announced that 2.1 million public sector workers who earn below £24,000 will be guaranteed a pay rise of at least £250.

The Chancellor told the House this means a majority of public sector workers will see their pay rise next year.

Sunak also revealed he is increasing the national living wage by 2.2% to £8.91 an hour, which he said will be extended to those aged 23 and over. This will likely benefit around “two million people”, he added.

However, the Chancellor also revealed that he expects unemployment to rise to a peak of 7.5% in the second quarter of next year, equivalent to 2.6 million people, and told the House “I have always said we cannot protect every job”.

Sunak highlighted a forecast from the Office for Budget Responsibility (OBR), which indicates the economy will contract by 11.3% this year – the largest fall in output for more than 300 years. He added that even with growth returning, the UK’s economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022.

The Chancellor described the situation as “clearly unsustainable in the medium-term” and said there is a responsibility to return “to a sustainable fiscal position”.

He added that that the economic damage of the coronavirus pandemic “is likely to be lasting” and suggested that “long-term scarring” means in 2025, the economy will be 3% smaller than expected in the March budget.

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