The question of government spending is a very sensitive one in the U.K., which struggled under years of austerity after the 2008 financial crisis. The matter is even more fraught now, as public sector workers, including nurses, firefighters and care workers, bore the brunt of tackling COVID-19.
Frances O’Grady, leader of the Trades Union Congress, urged ministers to think twice about a pay freeze.
“If you want to motivate a workforce when we are still facing a second wave of a pandemic — and we’re going to have a tough winter, we all know that — the last thing you do is threaten to cut their pay,” she said.
The overall impact of the virus on government spending will become more clear this week when the Office for Budget Responsibility releases its latest forecast for public finances and the economy.
The U.K. is facing one of the deepest recessions in its history, with economic production at least 10% smaller than last year, even after a rebound during the summer.
Government debt reached 101% of gross domestic product in October, the highest level since 1961.
“We thought what we saw back in the financial crisis was huge, but this is much, much bigger,’’ Paul Johnson, director of the Institute for Fiscal Studies, told the BBC.
The government will eventually have to rein in spending and raise taxes, but with interest rates at record lows and the pandemic still raging there is no need to do so immediately, Johnson said.
“My view is that we’re not going to need to do anything very much at all this year and probably next,” he told the BBC. “We’re probably looking into the middle years of the 2020s.”
Sunak plainly believes that the moment of reckoning is not yet here. But it is coming.
“One thing we know and have learned, this virus is adapting and evolving, our ability to combat is it adapting and evolving,” he told Sky News. “So there is an enormous amount of uncertainty at the moment and it wouldn’t be right to make long-term decisions right now.”