Spending review - what to look for from Rishi Sunak
Eight months ago, Rishi Sunak delivered a Budget which was built on continued economic growth, rising employment and a contingency of only £12 billion for Covid-19.
Our world is utterly transformed. Today the chancellor will update us on the devastating cost of the pandemic, to-date and to come.
In the summer, the damage to the public finances (in terms of higher spending and lost tax revenue) was estimated at just shy of £200 billion.
The second lockdown and the revival of the furlough scheme alone means the cost has inevitably spiralled higher.
Some of the costs incurred look like they will be recurring - spending on PPE, test and trace will surely run into next year and beyond. Given the prospect for unemployment the chancellor may decide that Universal Credit should be made more generous for longer.
This government promised to end austerity. In March, the chancellor pledged that day-to-day spending on public services would grow by 2.8% per year above inflation. That promise will be hard to keep. There will be winners and losers today.
The government will borrow a record amount of money this year. The deficit (the difference between what government spends and what it collects) will greatly exceed the 10% of national income recorded in 2008/9 during the financial crisis.
The Covid-19 lockdowns may permanently hurt our economy. Keep an eye on borrowing estimates in four years time. They will tell us the degree to which the Office For Budget Responsibility believes the “hit” is a one off and to what degree the damage will be enduring.
Before Covid-19 reached the UK, the Chancellor was already under pressure to spend more going forward - on social care, on the NHS - to meet the needs of an ageing population.
Post-Covid he is likely to face the headache of even greater spending demands and a smaller economy. It’s hard to see how tax burden won’t increase significantly.
And then there’s Brexit. The government continue to present a trade deal with the EU and as something that would be nice to have but non-essential.
The OBR is bound to assess what “no deal” in January would mean for economic growth, household income, employment and prices. It will not be pretty.
Tax rises surely lie ahead but they won’t be spelled out today. We are still in deep recession.
The recovery will come but until a vaccination programme has been roiled out, until restrictions lift, until something normal life returns it will be hard to make sensible assessments of the repair job that is necessary.
It could be next Autumn before the dust settles.
For the moment, the borrowing will take the strain. Never in our peacetime history has a government borrowed as much money as ours is today.
The last time the deficit was this big Britain was at war. Wars change the world and so do pandemics.