Spending Review this week, the Chancellor laid out the plans for government expenditure in the years ahead. The Office For Budget Responsibility released the latest forecast for the economy and government finances.
Government borrowing will hit £400 billion in the current financial year. Add in the funding for Gilt redemptions, the Debt Management Office will issue over £500 billion of new gilts this year. That's almost 25% of GDP. Thank the Bank, for the £1 trillion pound bank note. No need to task the markets too heavily to fund the deficits, "with inky blots and rotten bonds sustained".
The emergency spending on Covid measures now totals £280 billion. In the next financial year, it is hoped that spending on similar measures, will fall to around £55 billion. Total borrowing will fall to around £165 billion, then to £100 billion in 2022/23 as the damage from the pandemic abates.
No need for tax rises as yet. The Bank of England supports the spending plans, to sustain the economy during the crisis. Fears for tiers now extend to spring next year. Economic output is expected to have fallen by 11% in 2020. The good news, a strong recovery is expected next. The OBR is forecasting growth of 5.5% in 2021 and 6.6% in 2022.
The extension of the furlough scheme to the end of March, suggests the anticipated peak in unemployment will occur in the second quarter of 2021 at around 2.6 million, a rate of 7.5%. The spending review offers a commitment to create jobs, grow the economy and protect people's lives and livelihoods. The unemployment rate is expected to fall back to pre covid levels over the next two years.
More money for the NHS, education and defence. More schools, hospitals, safer streets and a big commitment to infrastructure. The creation of a national infrastructure bank, a positive step. The government is committed to the leveling up agenda, across the U.K.
More money for the low paid. The government is accepting in full the recommendations of the Low Pay Commission to increase the National Living Wage by 2.2% to £8.91 an hour and to extend the rate to those aged 23 and over. An increase in the National Minimum Wage rates follows. How long before the development of Universal Credit morphs into a Universal Basic Income?
It was all going so well for the Chancellor. Why then the suggestion of a public sector pay freeze and the threat to overseas aid. The move is political and piecemeal, with a modest yield in savings compared to the borrowing levels this year. NHS workers will avoid the pay freeze, those on lower incomes will receive a pay rise.
What then also of the the cut in overseas aid? The UK will spend the equivalent of 0.5% of GDP or £10 billion in 2021. "At a time of emergency, sticking to the 0.7% rule is not an appropriate prioritization of resources." according to the detailed spending review. It's also a good way of mitigating external capital flows ... always a good idea as the threat of gilt strike hovers ...
Deficits with inky blots and rotten bonds sustained : The Saturday Economist 22 June 2014
Rishi Sunak and the Trillion Pound Bank Note : The Saturday Economist 7th November 2020
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