Sunak announces record peacetime borrowing to combat historic downturn

Rishi Sunak has said the government will borrow a peacetime record of almost £400bn this year as it seeks to combat the worst recession in more than 300 years.

The chancellor said the UK faced an “economic emergency” that required a public sector pay freeze for millions and a cut in the overseas aid budget. But he insisted there would be no turning back from the government’s levelling-up agenda, announcing a £4bn fund to pay for local projects such as bypasses, libraries and station improvements.

The chancellor said the one-year spending review would “deliver stronger public services and a once-in-a-generation investment in infrastructure”.

Forecasts from the government’s tax and spending watchdog, the Office for Budget Responsibility (OBR), updated to take account of the second lockdown in England, show the economy will drop by 11.3% and take until the end of 2022 to recover to pre-pandemic levels.

Unemployment will rise to 7.5% next year – less than originally feared because of the Treasury’s furlough scheme and support for the self-employed – before falling to 4.4% in 2024.

There will be a freeze on public sector pay, apart from for NHS workers and those earning less than £24,000, who will get a a pay rise of £250.

Sunak said he could not justify maintaining the international aid budget at its current levels and it will take a significant cut from 0.7% of GDP to 0.5%.


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