Chancellor confirms National Living Wage
After several emergency speeches to Parliament during the first stages of the pandemic, Chancellor Rishi Sunak has returned to the House of Commons for a scheduled event – the Spending Review – which is nevertheless heavily influenced by COVID-19.
For example, the Review would normally be looking three or four years ahead but, in the current uncertain circumstances, the Chancellor has addressed only the next year.
So what did he have to say?
To begin with Mr Sunak made clear the interconnection between the ‘health emergency’, which is not yet over, and the ‘economic emergency’ which has only just begun.
Opening with a flurry of mind-boggling figures, the Chancellor highlighted that total spending on coronavirus so far has been £280 billion, that the economy will contract this year by 11.3 per cent (the largest fall in output since 1709) and that underlying debt is due to hit 97.5 per cent of GDP in 2025-26.
Describing totals not seen since the two world wars, he said that the Government will spend a further £55 billion to support public services next year.
‘Even with growth returning,’ he went on, ‘our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022.’
Quoting the independent Office for Budget Responsibility (OBR) the Chancellor said that unemployment is expected to rise to a peak of 7.5 per cent (2.6 million people) in the second quarter of 2021.
It will then gradually fall back to 4.4 per cent by the end of 2024.
Given that private sector wages have fallen by nearly 1 per cent compared to last year, while public sector wages have risen by nearly 4 per cent, there is no justification, Mr Sunak made clear, for a ‘significant, across-the-board pay increase’ for all public sector workers.
There will, however, be a pay rise for over one million nurses, doctors and others working in the NHS while the Government will also act to ‘protect those on lower incomes’.
The 2.1 million public sector workers who earn less than the median wage of £24,000 will be guaranteed a pay rise of at least £250.
In addition, the Government will accept a recommendation from the Low Pay Commission (LPC) to increase the National Living Wage (NLW) next year by 2.2 per cent, to £8.91 an hour - extended to those aged 23 and over.
Announcing a new UK infrastructure bank, the Chancellor explained capital (long-term) spending on infrastructure will total £100 billion, a £27 billion real-terms rise from 2019.
Financing infrastructure projects from next spring, the new bank will be based in the north of England.
After promising an increase of funding for the Scottish Government of £2.4 billion, for the Welsh Government of £1.3 billion, and for the Northern Ireland Executive of £900,000, the Chancellor said that the whole of the UK will benefit from the ‘UK Shared Prosperity Fund’.
This will match the EU funding due to end next year and should reach £1.5 billion a year, on average.
In addition, local authorities will have extra flexibility to raise money for social care through council tax and the Adult Social Care precept while the extra £1 billion social care grant provided this year will be maintained into 2021.
Finally, Mr Sunak unveiled a new ‘levelling up fund’, worth £4 billion, with any local area able to bid directly to fund local projects provided that they can be delivered within this Parliament and command local support.
He suggested new bypasses, upgraded railway stations, congestion-busting measures or more libraries, museums and galleries as possible projects.
As widely trailed, the amount spent on foreign aid is to be cut from the present 0.7 per cent of national income to 0.5 per cent although it will return to the present level ‘when the fiscal situation allows’, Mr Sunak said.
For more details of the Chancellor’s statement, see here.