Cost of Covid: Public sector pay freeze as Sunak declares 'economic emergency'

25 November 2020, 12:54 | Updated: 25 November 2020, 20:29

Chancellor Rishi Sunak gave his Spending Review on Wednesday
Chancellor Rishi Sunak gave his Spending Review on Wednesday. Picture: PA

By Kate Buck

Rishi Sunak today confirmed a £2.9 billion programme to boost jobs after the chaos caused by coronavirus, but brought in a public sector pay freeze to balance the books.

In his Commons statement on Wednesday, the Chancellor announced a new round of public sector pay restraint - with wages for more than four million workers capped or frozen altogether, with only front line NHS doctors and nurses exempt.

A pay rise will be given to nurses, doctors and others working in the NHS, but other public sector pay rises will be paused next year, affecting firefighters, teachers, the armed forces, police, civil servants, council and Government agency staff.

Read more: Chancellor's Spending Review: The key facts you need to know

Read more: Analysis: Britain set to feel aftershocks of Covid for years to come

The National Living Wage will also rise by 2.2% to £8.91 an hour and the National Minimum Wage will also be increased, benefiting around two million people.

The Chancellor also faced a backlash - including from some senior Conservatives - over a cut to the foreign aid budget from 0.7 to 0.5 per cent of national income.

Foreign Office minister Baroness Sugg has resigned in protest at the cut, branding it "fundamentally wrong.

Mr Sunak also announced the launch of a three-year Restart programme which will help more than a million unemployed people get back into work in the wake of the pandemic.

But he warned that this initiative will not fix what coronavirus has taken away. He said: "I've always said, we cannot protect every job."

The pandemic is estimated to lose around 2.6 million jobs, and the Government is borrowing £394 billion in an attempt to keep the country afloat.

The scale of the challenge was underlined by official figures last week which showed that public sector debt had passed the £2 trillion mark for the first time in UK history - taking it over 100% on national income.

In a "sobering" speech to the House of Commons, Mr Sunak said the Office for Budget Responsibility estimates the economy will fall by 11.3% - the largest fall in 300 years.

He also estimated that the levels of growth won't reach pre-pandemic levels until the last quarter of 2022.

The moves have angered unions who said public sector workers bore the brunt of austerity cuts after the global financial crash but Mr Sunak is expected to argue that is the private sector which has been hit the hardest in the pandemic.

But while business leaders have welcomed the moves to support jobs, Mr Sunak is braced for a backlash from trade unions over an expected freeze on public sector pay as he begins to repair public finances.

As well as the Restart programme, with tailored help for those out of work for more than 12 months, there will be £1.4 billion promised to increase the capacity of Jobcentre Plus and a £375 million skills package.

Unusually, because of the economic uncertainty caused by the virus, most Government departments will only receive a one-year spending allocation rather than the usual multi-year settlement.

An exception has been the Ministry of Defence which has already been given a four-year deal - worth more than £7 billion in real terms according to the Institute for Fiscal Studies - to modernise Britain's armed forces.

Other commitments include £3 billion more to support the NHS, including £1 billion to address the treatment backlogs built up while it was dealing with the Covid-19 crisis.

There will also be measures to support Boris Johnson's "levelling-up" agenda with the publication of the much-delayed National Infrastructure Strategy and investment across the UK's regions and nations, including £1.6 billion for local roads.

At the same time however, the Chancellor will take the first steps towards rebuilding the public finances after government borrowing soared and economic activity ground to a halt due to the pandemic.

He is also announced he is cutting the overseas aid budget to 0.5% of national income - a move denounced as a "strategic mistake" by former prime minister David Cameron who enshrined the 0.7% commitment in UK law.

In 2019 the total aid budget was £15.2 billion but as the target is linked to the health of the economy the amount for 2020 will be lower. Foreign Secretary Dominic Raab has already set out a £2.9 billion package of cuts.

A cut to 0.5% has been estimated to wipe around £4 billion from the overall budget, although that would depend on the level of national income.

He said the level would be taken back to 0.7% when the economic situation allowed.