The economic emergency caused by coronavirus has only just begun and there will be “lasting damage” to the UK, Chancellor Rishi Sunak said as he set out his Spending Review.
Official forecasts showed the UK economy was expected to shrink by 11.3% this year, the worst recession for more than 300 years.
The Chancellor told MPs that the Office for Budget Responsibility did not expect the economy to return to its pre-crisis levels until the end of 2022 and the damage was likely to last.
Individuals, families and communities must become stronger, healthier and happier as a result of this Spending Review.
That is the true measure of our success.
— Rishi Sunak (@RishiSunak) November 25, 2020
The “long-term scarring” would mean that in 2025 the economy will be around 3% smaller than expected in March.
Mr Sunak said: “Our health emergency is not yet over. And our economic emergency has only just begun.
“So our immediate priority is to protect people’s lives and livelihoods.”
The OBR forecasts show a recovery is expected over the coming years, with growth of 5.5% forecast next year as coronavirus restrictions are eased, then 6.6% in 2022, 2.3% in 2023, 1.7% in 2024 and 1.85 in 2025.
The Government will borrow an eye-watering £394 billion this year, equivalent to 19% of GDP – the highest ever recorded in peacetime.
Although borrowing will subsequently fall, the national debt is forecast to reach 97.5% of GDP in 2025-26.
“This situation is clearly unsustainable over the medium term,” Mr Sunak admitted.
While Mr Sunak continued to allocate large sums to tackling the ongoing emergency he confirmed there would be restraint in pay awards for public sector workers and a cut in overseas aid.
The Chancellor said he “cannot justify a significant, across-the-board” pay increase for all public sector workers in the circumstances.
Over a million nurses, doctors and others working in the NHS will get a rise but pay rises for the rest of the public sector will be “paused” – except for the 2.1 million workers earning below the median wage of £24,000, who will receive an increase of at least £250.