Chancellor Rishi Sunak has courted controversy with a freeze on public sector pay rises and a reduction in foreign aid spending in his coronavirus pandemic spending review.
The financial statement “pivoted between largesse and pain”, with Sunak announcing that pay will not increase for around 1.3 million public sector workers due to the economic fallout of Covid-19, the Financial Times reports.
In a statement to MPs yesterday, Sunak said the UK’s “health emergency is not yet over and our economic emergency has only just begun”. But the review has come under fire, after the Office for Budget Responsibility (OBR) revealed that the data used to draw up the plans was published before a string of promising vaccine results emerged.
What figures did the government use?
Tory MPs are “furious” after the spending watchdog admitted that the gloomy “central scenario” forecast on which Sunak’s spending review was based “did not account for the rollout of the immunity jab beginning before Christmas”, the Daily Mail reports.
Under the out-of-date scenario, the OBR predicted that GDP would shrink by 11.3% this year.
This figure, and Sunak’s review, was based on the assumption of “Britain languishing under virus restrictions until next summer”, with pubs and restaurants in many areas of the country remaining closed, the paper adds.
The chancellor presented his review in the Commons yesterday, two days after the announcement that the Oxford/AstraZeneca vaccine has been found to be to 90% effectiveness in certain doses. The encouraging results from ongoing Phase 3 clinical trials have raised hopes that the end of the pandemic could come far sooner than had been expected.
Should the government have adjusted its plans?
It is unclear whether Sunak would have announced different measures had the government used more up-to-date figures. However, the significant differences between the central forecast and other, more optimistic, OBR forecasts might have altered the chancellor’s strategy.
In the OBR’s “best-case scenario” – based on a vaccine being widely available by the spring – GDP “still declines by over 10% this year and the economy takes until the end of next year to recover”, Yahoo! News reports. But in the watchdog’s worst-case scenario, the UK economy shrinks by 12% this year and does not recover until the end of 2024.
In this latter scenario, lockdowns are extended and vaccines prove ineffective.
In a statement yesterday, the OBR said that the announcements last week that the Pfizer-BioNTech and Moderna vaccines have also achieved “excellent results” in late-stage clinical trials “arrived just as our forecasts were being finalised” and was “undoubtedly very positive news”.
“However, it does not automatically imply an immediate or complete return to normal economic life for the whole population for several reasons,” added the watchdog, which predicts lengthier time-scales for producing, sourcing and administering the jabs.
