Hey big spender: UK’s Sunak promises higher public spending

British finance minister Rishi Sunak is ready to open the government’s wallet in a bigger way.

On Wednesday, Sunkak said he will boost public spending, thanks to a stronger than expected pick-up in economic activity that is giving the government more breathing room to help households struggling with rising costs for food, electricity and other basic essentials.

Delivering his bi-annual budget statement to Parliament, Sunak said the United Kingdom’s economy was likely to grow by 6.5 percent this year. That is two and a half percentage points higher than a March call for 4 percent growth, when the country was in the middle of a COVID-19 lockdown.

Since then, the UK has rolled ahead with its COVID-19 vaccination programme and lifted virus restrictions that dragged on business activity.

“Today’s budget does not draw a line under COVID. We have challenging months ahead.” Sunak said. “But today’s budget does begin the work of preparing for a new economy post-COVID.”

The higher growth forecast for 2021 means the economy is on track to regain its pre-pandemic size by the start of next year – a full quarter sooner than March predictions.

It also means Sunak – who racked up the biggest ever peacetime budget deficit to combat the coronavirus –  will not have to borrow as much, because stronger economic growth delivered more revenues to the government.

Sunak said every government department would get a real-term increase in spending and he promised the biggest increase in a decade in the core funding of local governments.

He also announced new rules to govern borrowing and said a controversial cut in the government’s spending on overseas aid to 0.5 percent of national income will revert back to the previous level of 0.7 percent by 2024/25.

“Our improving fiscal situation means we will meet our obligations to the world’s poorest,” Sunak said.

‘Willing to act’ on inflation

Sunak went on to acknowledge the risks posed by rising inflation, much of which he blamed on problems in the global economy.

“I understand people are concerned about global inflation – but they have a government here at home ready and willing to act,” he said.

He also announced further measures to ease a shortage of truck drivers which has led to supply chain problems.

“And in terms of our fiscal policy, we are going to meet our commitments on public services and capital investment but we are going to do so, keeping in mind the need to control inflation,” Sunak said.

Prior to Wednesday’s budget statement, Sunak had already announced that spending on health will go up to resolve a massive virus-related backlog in care. He had also previously said that the public sector pay freeze for military personnel, police officers and teachers will end, and that the minimum wage for low-income workers will go up by 6.6 percent beginning in April.

Given that inflation is expected to keep climbing in the coming months, potentially to more than 5 percent, there are concerns as to whether the pay increases will be enough to keep up with rising coss.

The main opposition Labour Party has urged Sunak to do more about the high cost of living, accusing him of “smoke and mirrors” in his pre-budget announcements.

Business executives have also expressed concerns about the planned increase in the minimum wage, given that they are already set to pay more taxes during the coming years at a time when they are still trying to recoup pandemic-generated losses and deal with current rising costs.