Britain's finance minister Rishi Sunak has outlined the UK government's spending plans for the next year, against the backdrop of huge damage to the public finances wrought by the coronavirus pandemic.
Appearing before MPs, the Chancellor of the Exchequer said that while the health emergency was not yet over, the economic emergency was only just beginning.
Citing OBR (Office for Budget Responsibility) forecasts in his address, Sunak said the economy was due to contract by 11.3% this year, calling it the largest fall in output for 300 years.
Even as growth returned in the coming years, economic output would not go back to pre-crisis levels until the fourth quarter of 2022, and the economic damage from COVID-19 was likely to be lasting.
The pandemic and the response to it had caused a significant increase in borrowing and debt, Sunak said. Borrowing would be £394 billion (€441.8 billion) this year, or 19% of the country's GDP, the highest in the UK's peacetime history.
Debt would be 91.9% of GDP this year, rising to 97.5% in 2025-26, he said. In comparison, government debt in the eurozone stood at 95.1% of GDP in the second quarter of 2020, according to Eurostat, the EU statistics agency.
Funding for jobs and public services
Ruling out a return to austerity, the chancellor gave more details of spending plans for public services and to fight unemployment, having already announced £4.3 billion (€4.82 billion) in programmes to help people find work.
Unemployment is set to rise to 7.5%, Sunak said, before falling to 4.4% by the end of 2024.
The government was spending £280 billion (€313.9 billion) to get the UK through the coronavirus pandemic, he added. The immediate priority was to save lives and livelihoods, but there would also be investment in hospitals, schools, infrastructure, creating jobs and growing the economy.
The Chancellor said there could not be an across-the-board pay rise in the public sector, but increases would instead target those most in need.
One million nurses and doctors in the NHS (the UK's health service) will get a pay rise, he said. But increases will be paused in the rest of the public sector.
The government's objective was to protect low incomes, he added, saying the 2.1 million lowest paid workers would get a £250 (€280) minimum rise. This meant most public sector workers would get a pay rise, Sunak said.
Sunak makes no mention of Brexit
Responding for the opposition Labour Party, shadow chancellor Anneliese Dodds said many key workers faced a pay freeze.
She criticised the amount of money spent on government contracts, saying those with connections to ministers had been many times more likely to get deals than others.
This was waste "on an industrial scale", she added.
Dodds also highlighted the fact that the chancellor had made no mention of Brexit, despite the fact that no trade deal has yet been struck with the EU with only weeks to go before the transition period expires.
In a separate report on Wednesday, the Office for Budget Responsibility (OBR) said a no-deal scenario would knock an extra two percent off national income.
The OBR said that if the UK trades with the EU under World Trade Organization (WTO) terms, as would happen should no trade deal be reached by the end of the transition period on December 31, the effect would "reduce real GDP by a further 2% in 2021".
UK overseas aid to be cut
The finance minister confirmed that the UK would abandon its target of spending 0.7% of national income on overseas aid, instead reducing the proportion to 0.5% next year.
Spending so much on international aid was difficult to justify during a "domestic fiscal emergency" with borrowing so high, Sunak said. At a time of unprecedented crisis the government had to make tough decisions.
The UK was still the second biggest aid spender in the G7, he added.
Some in the Conservative government had argued for such a move. But it has been criticised by many, including several former prime ministers.
Nobel Prize laureate Malala Yousafzai joined the calls for Sunak to make sure that the commitment was not ditched.
"COVID-19 could force 20 million more girls out of school," she said. “To keep girls learning, we need leaders to prioritise education," she said, speaking before the minister's announcement.
Watch the interview with UK correspondent Tadhg Enright in video player above.