A decade after the world was plunged into financial crisis, Theresa May stood at the podium at the 2018 Conservative Party conference and declared that “austerity is over”.
Vowing to invest in public services and renew the NHS, the then prime minister told delegates in Birmingham that “the end is in sight”, as the Daily Mirror reported at the time. But little did May know that just two years later, her successor at No. 10 would be facing an even bigger economic crisis.
This weekend, Chancellor of the Exchequer Rishi Sunak insisted that there would be “no return to austerity” amid the economic fallout caused by the coronavirus pandemic. Ahead of Wednesday’s Spending Review for the next financial year, Sunak told Sky News’ Sophy Ridge On Sunday programme that “you will not see austerity next week, what you will see is an increase in government spending”.
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So just what does Sunak have planned?
Public sector pay freeze
Despite Sunak’s assertions to the contrary, talk of a return to austerity is increasing after the chancellor “in effect” confirmed that the Spending Review is likely to feature a pay freeze for many public-sector workers in England, The Guardian reports.
NHS England doctors and nurses are expected to be exempted, but when asked by Sky News’ Ridge about the overall outlook for public-sector pay, Sunak said any wage settlements needed to be considered “in the context of the wider economic climate”.
That response has prompted anger from Labour MPs and trade unions, with TUC secretary general Frances O’Grady calling the expected cap “morally obscene and bad economics”.
O’Grady refused to rule out possible strike action over the issue. “This is absolutely the wrong time to be talking about pay cuts,” she told Ridge.
Future tax rises
Despite billions of pounds being spent on the pandemic response, and despite the planned pay freeze, Sunak has warned that the UK public will soon see “the scale of the economic shock laid bare”.
The government has indicated that past promises will be kept when allocating funds for policing, nurses and schools. But experts are warning that Sunak “could be putting Britain on the path towards major tax rises in the years ahead” in order to balance the books, says The Independent.
Latest official figures show that “public sector debt stood at £2.076trn at the end of October - bigger than the entire UK economy - with borrowing at record levels”, Sky News reports.
Public service cash injections
Although spending on public services has been falling since 2010, the government had made plans pre-pandemic to “bring that squeeze to an end” and increase spending this year and next, says the BBC’s business reporter Ben King.
Elements of the Spending Review, which covers the year from April 2021, have already been announced.
The NHS in England is guaranteed at least £133bn next year, and a further £3bn has been pledged to tackle a backlog of delayed non-Covid treatments and operations. Funding for 50,000 more nurses and 50 million additional GP appointments have also been confirmed.
Total spending for schools in England will be £49.8bn, after a further promise of an extra £2.2bn in 2021-22. And Boris Johnson last week announced an increase in defence spending totalling £16.5bn over four years.
Sunak is also reportedly set to announce up to £2bn to build new schools and prisons and recruit thousands of additional police officers.
In addition, a £1.25bn cash injection is planned to help “fix Britain’s struggling penal system”, and “hundreds of millions of pounds of additional funding will also be announced for the second round of police recruitment, on top of the £750m released last year to hire the first 6,000 of 20,000 new officers”, according to The Telegraph.
Overseas aid budget cut
Speculation is growing that the overseas aid budget may be cut in the Spending Review. The government is currently committed to spending 0.7% of national income on overseas aid, but Sunak is expected to announce a temporary reduction to 0.5%, the Financial Times reports.
Former PM David Cameron has warned that the move could be a “strategic mistake”, however.
Cameron said: “Abandoning the 0.7% target for aid would be a moral, strategic and political mistake. Moral, because we should be keeping our promises to the world’s poorest. A strategic error, because we would be signalling retreat from one of the UK’s vital acts of global leadership.”
Levelling up
Many parts of the Spending Review will only apply to England, as much of the government activity in the UK is controlled by the devolved administrations in Scotland, Wales and Northern Ireland.
All the same, Sunak is facing a “litmus test” to level up a Covid-ravaged UK, says The Telegraph’s economics reporter Tom Rees. The chancellor must “redirect London-centric spending while battling the costs of dealing with the coronavirus crisis”.
More than 50 Conservative MPs representing former “red wall” seats in the north of England wrote to Sunak and the prime minister last month demanding a “roadmap out of lockdown” and a post-Covid economic recovery plan for their regions. The members of the newly former Northern Research Group have been described as Johnson’s “biggest threat” after demanding that he deliver on his promise to “level up” the nation.
According to the BBC’s economics editor Faisal Islam, Sunak is aiming to avert the danger of a Tory rebellion through a series of reforms aimed at tackling “anti-Northern spending bias”.
