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The Observer view on Sunak's callous spending review | Observer editorial


The impacts of this pandemic will continue to be felt long after vaccines have generated enough Covid-19 immunity to eliminate its immediate threat to human health. There are the tens of thousands of lives that have been ended decades too soon, leaving gaps that will never be filled in the hearts of loved ones and, last week, the scale of the long-term economic damage that this virus will wreak was set out by the independent Office for Budget Responsibility. Not only is the economy forecast to experience an 11.3% contraction this year, the biggest in more than three centuries , but the pandemic will leave the economy 3% smaller in the long run. It may not sound like much but, without significant redistribution, the job losses and pay cuts will leave countless families in dire financial straits.

This is the backdrop against which the chancellor’s spending review must be assessed. The right question to ask of Rishi Sunak’s announcements is whether he is directing enough resources at economic recovery, in the context of one of the deepest recessions this country has ever known. At a time when the cost of borrowing is so low, Sunak should be throwing everything at getting the economy moving again and protecting the least affluent families and regions from Covid-19’s worst impacts. A failure to do so will not only prolong the crisis, it will trigger intergenerational cycles of hardship across areas of the country that will take decades to recover from.

Sunak has failed two important tests.

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First, he has failed to do enough to protect the least affluent. His Conservative predecessors imposed huge cuts to tax credits and benefits for low-income, working families with children over the past decade, leaving many of them thousands of pounds worse off. They told us this was an economic necessity but, in reality, it was a political choice, with the proceeds used to fund billions of pounds of tax cuts a year that disproportionately benefited the affluent, a straight transfer from the most hard-up to the better-off.

The chancellor should have reversed these cuts as a matter of urgency when Covid-19 hit. Instead, he introduced a £20-a-week universal credit top-up that is nowhere near enough to make up for the cuts of the past 10 years and remains set to be removed next April. This would leave more than 6m families more than £1,000 a year worse off at a time when they face higher costs as a result of the pandemic. And it will mean the 2.6 million people who are forecast to be unemployed by the middle of next year will find themselves on unemployment benefits that are at their lowest real levels since 1990. Moreover, a growing number of families will find themselves homeless as a result of the government’s decision to freeze the level of support they can get with their housing costs. It is callous in the extreme.

Sunak’s second failing is in not taking the right long-term decisions needed to protect the economy. In the 1980s recession, too many people who lost their jobs never worked again; there was far too little investment in skills and retraining. Sunak is in danger of repeating those mistakes. The government is not investing anywhere near enough into lifelong education and retraining so that people who lose their jobs can prepare for the new posts that will be created in the years to come. There was also far too little in the spending review on housing. The low costs of borrowing make this the ideal time to increase levels of public investment in good-quality council housing, which would create construction jobs, provide affordable homes for rent to families on low incomes and reduce future benefit bills by cutting the amount government has to spend propping up private landlords in an overheated housing market.

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Sunak’s spending review also reveals that the prime minister’s pledge to “level up” the gap between London and less affluent parts of the country – the UK has some of the largest regional inequalities in the Organisation for Economic Co-operation and Development – is just rhetoric. The long-term impacts of the pandemic will be felt most sharply in the areas of the country that were already falling behind. A £4bn centrally run fund, which is open to political manipulation, will hardly make any difference. And the government’s most significant economic policy decision of the past decade – to go ahead with a hard Brexit – will depress the economy by up to 5.5% in the long term, almost twice the hit of the coronavirus. That will widen the regional gap even further. The government’s decision to inflict this scale of damage on the economy during a pandemic is nothing short of madness.

The clues about the kind of chancellor that Sunak is lie not in the headline level of spending but in the stingy decisions he has taken in order to save a relative drop in the ocean here and there. In imposing a real-terms pay cut on public sector workers, after so many risked their lives to work during the pandemic and keep the country running, and in his cut to the international aid budget by 0.2% of GDP, while some of the poorest countries in the world struggle with the huge global downturn, Sunak has shown he has far more in common with George Osborne and Philip Hammond than the borrowing figures might at first glance imply. And, just as they did under Tory chancellors who ruled over recessions past, millions of people will suffer unnecessary hardship as a result.



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