LONDON — Britain’s Treasury chief Rishi Sunak is painting a relatively rosy picture of the state of the British economy following the country’s deepest recession in around 300 years as a result of the coronavirus pandemic.
In his annual budget speech to Parliament, Sunak said today that independent forecasters at the Office for Budget Responsibility are predicting growth this year to be 6.5%, up from the previous prediction of 4% just a few months ago. He also said that borrowing and debt will be lower as a proportion of national income than previously thought.
The British economy, which suffered the worst recession among the Group of Seven industrial nations last year, has been recovering over recent months following the lifting of lockdown restrictions as well as a pick-up in global trade.
However, it has suffered a series of shortages that many blame on Britain’s departure from the European Union and dislocations caused by the pandemic. It is experiencing big price rises, largely due to the sharp pick-up in energy costs.
Because of the improving economic backdrop, Sunak said he would help families meet the rising cost of living and that every government department will receive a “real-terms rise in overall spending” over the coming three years. He also said a controversial cut in the government’s spending on overseas aid to 0.5% of national income will, according to the forecasts, revert back to the previous level of 0.7% by 2024/25.
“Today’s budget does not draw a line under COVID. We have challenging months ahead,” he said. “But today’s budget does begin the work of preparing for a new economy post-COVID.”
Earlier, Sunak emerged from his office at 11 Downing Street with his team, holding up the red budget box that contains the speech that he will give to Parliament. Many of the speech’s headlines had already been revealed, much to the fury of the Speaker of the House of Commons, Lindsay Hoyle.
Sunak had already announced that spending on health will go up to resolve a massive virus-related backlog in care and that the minimum wage for low-income workers will go up by an inflation-busting 6.6% beginning in April. He has also said the public sector pay freeze for military personnel, police officers and teachers will end.
Given that inflation is set to rise further in the coming months, potentially to over 5%, there are concerns as to whether the pay increases will be enough to keep track with inflation.
The main Labour Party opposition is urging Sunak to do more about the high cost of living, accusing him of “smoke and mirrors” in his pre-budget announcements.
Business executives have expressed concerns about the planned increase in the minimum wage, given that they are already set to pay more taxes in the coming years at a time when they are trying to recoup pandemic-generated losses and deal with current rising costs.
With many of the pandemic-related firefighting measures, such as a salary support scheme, now finished, Sunak is also expected to flesh out the funding arrangements for Prime Minister Boris Johnson’s long-term priorities, notably his ambition to “level up” the U.K. That means spreading prosperity through a variety of measures, including higher infrastructure spending, beyond the wealthy south that is the traditional Conservative heartland.
Sunak said “for too long, far too long, the location of your birth has determined too much of your future.”