LONDON: British Finance Minister Rishi Sunak said there would be no return to austerity in a spending plan he will announce on Wednesday, even as the coronavirus crisis pushes the country’s debt further above £2 trillion ($2.7 trillion).
Sunak, who has rushed out massive government spending increases and tax cuts equating to about 10 percent of economic output, said he would announce “quite a significant” increase in funding for public services.
“You will not see austerity next week,” Sunak told Sky News on Sunday, saying his priority in the one-year spending plan was to fight the health and economic crises.
More than £3 billion will be set aside in extra help for the health service. Economists think Britain will borrow about £400 billion this year, approaching 20 percent of its gross domestic product, the most since World War Two.
It would be nearly double the hit from the global financial crisis, which took a decade to work down, and some lawmakers in Prime Minister Boris Johnson’s Conservative Party want more fiscal restraint now.
Sunak said forecasts to be published on Wednesday would show the “enormous strain” on the economy and now was not the time to cut back on spending or raise taxes. “Once we get through this crisis we need to think more about returning to a more normal path,” he told Times Radio. “But as of now we are able to do what we need to do and we are able to do that at an affordable cost.”
Though yields on government debt remain close to record lows, Sunak is expected to announce a freeze on public sector pay to offset some of his spending.
“When we think about public pay settlements, I think it would be entirely reasonable to think about those in the context of the wider economic climate,” he said.
Sunak also said he would announce longer-term measures to boost infrastructure spending, part of Johnson’s promise to spread economic growth to regions that lag behind London and the southeast.
Britain also faces the risk of an economic shock if it fails to strike a trade deal with the EU in time for the Dec. 31 expiry of its post-Brexit transition.
Sunak said the government wanted to get a deal but the short-term impact of not doing so would pale by comparison with the hit from the pandemic.
Trade deal
The UK signed an interim trade deal with Canada on Saturday, giving it more time to negotiate future trading rules as the British government prepares the country for business life outside the EU.
The stopgap agreement allows trade between the two countries to continue under the same terms as Canada’s existing treaty with the EU while negotiators begin work on a new bilateral deal between the UK and Canada, Prime Minister Boris Johnson said in a statement. Canada is the UK’s eighth-biggest non-EU trading partner.
While Britain formally withdrew from the EU in January, it continues to trade with other countries under the bloc’s umbrella during a transition period scheduled to end Dec. 31. Without a series of new bilateral agreements, trade with countries around the world may be hampered by barriers such as tariffs and increased paperwork.
The deal with Canada locks in existing trading rules that cover £20 billion of trade between the two countries, or about 1.5 percent of the UK’s total trade in goods and services last year.
The UK has now secured post-Brexit trade deals with 53 countries accounting for £164 billion of bilateral trade, the government said.
