UK politics live: Rishi Sunak freezes public sector pay except for NHS and cuts overseas aid

Justin Welby, the archbishop of Canterbury, has described the cut in the aid budget announced by Rishi Sunak as “shameful and wrong”.

According to this chart from the Spectator’s editor Fraser Nelson, the growth figures announced by Rishi Sunak mean the UK is on course for the second largest economic contraction this year in Europe.

Here is my colleague Philip Inman’s early story about the spending review statement.

And here is a summary of the key points from the speech.

The Office for Budget Responsibility’s new Economic and Fiscal outlook is out, and it pulls no punches about the economic emergency created by Covid-19.

The OBR says:

The coronavirus pandemic has delivered the largest peacetime shock to the global economy on record. It has required the imposition of severe restrictions on economic and social life; driven unprecedented falls in national income; fuelled rises in public deficits and debt surpassed only in wartime; and created considerable uncertainty about the future.

The UK economy has been hit relatively hard by the virus and by the public health restrictions required to control it.

The OBR then warns that Covid-19 has also exacted “a heavy and mounting toll on the UK public finances”.

In our central forecast, receipts this year are set to be £57 billion lower, and spending £281 billion higher, than last year. The Government has committed huge sums to treat the infected, control the spread of the virus, and cushion its financial impact on households and businesses.

As support has been expanded and extended, including in the wake of the second wave of infections, its total cost this year has risen from £181 billion at the time of the Summer Economic Update, to £218 billion at the time of the Winter Economy Plan, to £280 billion in this forecast.

As Rishi Sunak outlined, the OBR’s central scenario is that the UK deficit surges to £394bn this year. That’s 19% of GDP, which is the highest level since the end of the second world war.

In comparison, in 2009-10 after the financial crisis the UK borrowed £157.7bn, or 10.1% of GDP.

This would drive the national debt to 105% of GDP, the OBR says, its highest level since 1959-60, adding:

Borrowing falls back to around £102 billion (3.9 per cent of GDP) by 2025-26, but even on the loosest conventional definition of balancing the books, a fiscal adjustment of £27 billion (1 per cent of GDP) would be required to match day-to-day spending to receipts by the end of the five-year forecast period.

Here is the scorecard from the spending review document (pdf). This is the most important table in the whole document because it sets out what everything is going to cost.

Negative sums represent money is effectively having to spend (over and above what is already plannd for); positive sums represent money coming in.

In her speech Anneliese Dodds points out that Rishi Sunak did not even mention Brexit, or the cost of not having a trade deal, in his speech. She says businesses need certainty.

The Treasury has just published all the spending review documents on its website.

Here is the main 120-page spending review book (pdf).

Here are the policy costings (pdf).

Here is a spreadsheet with policy decision costings.

And here are details of settlements for Scotland, Wales and Northern Ireland.

Anneliese Dodds, the shadow chancellor, is responding for Labour.

She says earlier this year the chancellor clapped for key workers. But now he is making many of them face a pay freeze.

She says this will take money out of the economy.

In contrast, there has been a bonanaza for firms getting contracts from this governemnt. Firms with government connections have been 10 times as likely to get a contract as others, she says.

She says there has been waste “on an industrial scale”.

And she says the decision to ignore Labour’s call for a short, circuit breaker lockdown, and to have a month-long one instead, has cost the economy £12bn.

Sunak says individuals and communties must become stronger, healthier and happier as a result.

The spending announced today is secondary to the courage, wisdom, kindness, and creativity it unleashes.

He says the government has funded the priorities of the British people. Now the job of delivering them starts, he says.

And that’s it. The statement is over.

Sunak says numbers are not enough on their own to explain the government’s vision for the country.

There will also be a new immigration system, and a new planning system, with an emphasis on beautiful homes. And the government will protect free speech, and value jobs.

Good jobs are the most rewarding and sustaining path to prosperity, he says.

But encouraging the individual and community brilliance, on which a thriving society depends remains as ever, a work unfinished.

Sunak says people want to be proud of the places they call home.

For too long funding for development has been complex and ineffective.

A new “levelling up” fund worth £4bn is being set up. It will be managed by the Treasury, the transport department and the communities department.

It will take a holistic approach, he says. Projects must command local support, including from MPs.

This will fund what people and places need, he says.

Sunak reminds MPs that the government has announced an extra £24bn for defence.

Capital spending next yer will be £100bn, he says.

He says a new infrastructure strategy is being published today.

And a new infrastructure bank will be set up.

Sunak says spending so much on international aid is difficult to justify with borrowing so high.

But at a time of unprecedented crisis, the government must make tough decisions, he says.

He says it will spend 0.5% of national income on aid in 2021 – not 0.7% This will amount to £10bn.

He says it will be the government’s intention to return to 0.7%.

Even with this target, the UK will still be the second biggest aid spender in the G7, he says.

The 11.3% slump in UK GDP forecast this year will be even worse than the recession of 1921, when Britain’s economy shrank almost 10% in the aftermath of the first world war and the Spanish flu epidemic.

It means 2020 will see the biggest contraction since 1709, when the Great Frost ravaged Europe’s economies, creating food shortages as livestock froze.

Sunak announces an extra £2.2bn for schools.

And the government will fund more prison places, he says.

Sunak is now addressing departmental spending.

Day to day departmental spending will increase by 3.8%, he says. He says that is the fastest rise in cash terms in 15 years.

The core health budget will grow by £6.6bn, he says.

Sunak says the national living wage will rise by 2.2% to £8.91 per hour. About 2 million people will benefit, he says.