Rishi Sunak today stoked hopes a £180billion consumer boom will fuel the UK’s recovery – but admitted that fears of mass unemployment ‘keep me up at night’.
The Chancelllor voiced optimism that a fast bounceback will fueled by the huge savings warchest built up by those who have kept working through the pandemic.
But he said he main concern was the prospect of huge job losses in sectors hammered by the repeated lockdowns to combat the disease.
Mr Sunak also defended the ‘fair’ 1 per cent pay rise for NHS staff, stressing the vulnerability of the public finances with the burgeoning debt mountain.
The comments came as he gave two hours of evidence to the cross-party Treasury Select Committee this afternoon.
Rishi Sunak gave two hours of evidence to the cross-party Treasury Select Committee this afternoon
The OBR estimates accompanying the Budget last week showed the damage inflicted to the public finances by coronavirus
Treasury Select Committee chairman Mel Stride said he was willing to have a bet with Mr Sunak that the public spending assumptions in the Budget will not be met
In a positive take on the UK’s prospects, Mr Sunak pointed to the OBR’s estimates that around £180bn in savings has been built up, and it could be spent at a rate of around 5 per cent per year.
‘Consumption it looks like can and will spring back reasonably quickly once things are reopened,’ he said.
‘We will have a sense of that once things have reopened…’
Mr Sunak said after the first lockdown there was more reason to be concerned about consumer confidence.
‘This time around both in the UK and internationally we’ve seen that you do tend to get quite a strong consumption automatically,’ he added.
Mr Sunak highlighted the uncertain potential for the economic ‘scarring’ caused by the coronavirus crisis to be worse than the OBR’s estimate of 3 per cent of GDP in five years’ time.
‘So, even if the road map comes to pass and it turns out that the medium-term scarring impacts are worse than feared, that would be of concern because that is a very significant impact on the economy,’ he said.
‘Obviously the exact path of the labour market is one that I’m constantly kept up at night by – sadly three-quarters of a million people have already lost their jobs and more are forecast to do so.’
The forecast for unemployment to peak at 6.5% was lower than previously expected ‘but fundamentally that’s a large number of people who are going to lose their jobs over the course of this pandemic and minimising the number of those unemployed and finding them new opportunities as quickly as possible is a thing that keeps me up at night’.
Mr Sunak acknowledged the public finances ‘are much more sensitive to changes in interest rates and inflation than they were previously’ and an increase in interest rates would have a ‘significant impact’.
Treasury Select Committee chairman Mel Stride said he was willing to have a bet with Mr Sunak that the public spending assumptions in the Budget will not be met.
Mr Stride said that if he was chancellor he would be ‘very worried about how realistic the spending figures are’, with ‘no explicit provision’ for ongoing coronavirus spending, pressure on NHS finances, education, the rail network, the potential further extension of the £20-a-week Universal Credit increase and social care.
He asked the Chancellor: ‘Is it just not the case that the current numbers you have got in there on spending are unrealistic and are just going to come under unbearable pressure over the coming spending round and the years ahead?’
However, Mr Sunak said there had been a ‘significant uplift’ in public spending and by the end of the parliament ‘the state will be spending historically very large amounts of money’.
He said the size of the state is ‘quite chunky by historic standards’ but he acknowledged that choices on funding priorities would have to be made at the spending review.
In a hint that the state could end up being larger in the longer term after the crisis, Mr Sunak said: ‘Obviously, the government has to raise the money to fund the public services it is committed to delivering, so those two things always have to be in sync.
OBR documents laid bare the shape of the Budget, with huge expenditure meaning higher borrowing in the first years of the forecast and then taxes being raked in later
‘And if there are demands on the spending side that are larger, it is reasonable to expect that those have to be paid for. Most people will understand that.’
Mr Sunak also mounted a staunch defence of the Government’s proposed 1 per cent pay rise for NHS staff amid condemnation from Labour and unions.
He said he had set out a ‘targeted approach’ to public-sector pay in last year’s spending review.
‘For a matter of fairness and also to protect people’s jobs in the public sector we set out a targeted approach to public-sector pay which we thought was proportionate, fair and reasonable,’ he said.
‘What that actually did was ensure those in the NHS would actually receive a pay rise next year. In other parts of the public sector that will not be the case next year.
‘We did also protect those on the lowest incomes, so that if you earn less than the median salary of around £25,000 – just under – you receive an increase of at least £250 next year.
‘So that is a targeted approach to public-sector pay.’
The prospects for GDP in the coming months are marginally worse than in November, with the lockdown impact being offset by the fast vaccine rollout, according to the OBR