6 2GM Thursday November 26 2020 | the times
News
The pandemic will leave economic
scars that will not heal until well into
the middle of the decade, official figures
suggest.
In its latest projections, the Office for
Budget Responsibility (OBR) said that
by 2025 the economy would be 3 per
cent, or £65 billion, smaller than if coro-
navirus had not forced the government
to impose stringent controls.
The lower path for growth leaves the
government facing difficult decisions.
A permanently smaller economy than
expected means that the chancellor
will have to find savings to fix the public
finances. The OBR said that at least
£27 billion of tax rises may be needed.
Mel Stride, chairman of the Treasury
select committee, said: “The 3 per cent
hit due to Covid is severe. It is deep
scarring. The furlough scheme was de-
signed to reduce that scarring. But that
time is well past.”
The damage is equivalent to £2,
of lost national income for every house-
hold but the OBR’s projection was
worse than other forecasters. The Bank
of England pencilled in a 1.75 per cent
permanent loss of economic output.
The spending watchdog said that the
economy would shrink by 11.3 per cent
this year, the deepest recession since
the Great Frost of 1709 and a sharp re-
versal from its March forecast, when it
expected annual growth of 1.1 per cent.
Economic activity will rebound sharply
next year, by 5.5 per cent, but it will take
until the end of 2022 for GDP to return
to its pre-pandemic level.
The National Institute of Economic
and Social Research, an independent
think tank, said: “Without the signifi-
cant economic fiscal interventions de-
ployed, the economic damage could
have been even worse. The furlough
scheme, in particular, has been ex-
tremely successful in limiting the in-
crease in unemployment and the scale
of economic scarring.”
Economists were divided over the
OBR’s projections. Ruth Gregory,
senior economist at Capital Econom-
ics, said: “The OBR’s forecasts exagger-
ate the weakness in the economy. First,
we think the projections are underplay-
ing the effect of vaccines on economic
activity. Rather than return to its pre-
virus level in late-2022, as the OBR
expects, we suspect the economy will
be able to do so by early 2022.”
Ms Gregory said that the economy
would be about 1 per cent smaller at the
end of the parliament, a more optimis-
tic forecast than the OBR or the Bank.
The OBR believes that uncertainty
has deterred businesses from making
necessary investments in machinery
and IT. That has left the private sector
less productive than otherwise and
accounted for two thirds of the scarring.
Fewer immigrant workers and a
smaller potential labour force account
for much of the rest of the downgrade.
When the pandemic hit in March,
thousands of migrant workers left.
Challenges in implementing the new
points-based immigration regime atthe end of the Brexit transition period
could also deter new workers.
Participation in the labour market
will also fall as many people may decide
to give up looking for work.
The OBR’s central forecast assumes
that restrictive public health measures
will be kept in place until the spring and
that a vaccination programme will be
implemented slowly next year.
Questions on spending and Brexit
remain, leading article, page 33Quentin Letts
Relax, turn on
Schubert, this
won’t take long
S
unak speeches are warm,
relaxed, a bubble bath with
Schubert on the wireless.
There is something
aromatherapeutic about the
voice with its honeyed inflections.
He started his statement at 12.45pm
but soon one was feeling drowsy.Which was perhaps as he intended
when it came to the two trickier
moments: the pay freeze for civil
servants, and the overseas aid
haircut.
He opened with a fusillade of
statistics about the billions being
borrowed. “These are difficult and
uncertain times,” said Dr Badedas
with his pine-scented purr. “We
are completely broke. The
economy’s banjaxed. Your pensions
will shrivel like washerwomen’s
fingers. Relaaaaaaax!” And then: “I
cannot justify a significant
across-the-board increase for
public sector workers” and “we
will spend 0.5 per cent of GDP on
aid in 2021”. Painless!
There was pushback on aid.
These began with Sir Peter
Bottomley (C, Worthing West),
who, like his predecessor as father
of the house, selfishly takes
advantage of his position to asklong questions. “I fight to maintain
the pledge,” said Sir Peter, referring
to the Tory manifesto promise to
keep higher aid donations. Andrew
Mitchell (C, Sutton Coldfield)
accused Mr Sunak of killing
100,000 babies in poor countries.
Jeremy Hunt (C, Surrey South
West), bending his spine like a
windsurfer, also attacked. There
still glows a small ember of
ambition there. It was not all one
way on aid. Sir Robert Syms (C,
Poole) said we spent £100 billion on
aid in recent years, most of it
borrowed. Philip Davies (C,
Shipley) said that voters couldn’t
give a monkey’s about aid.
Anneliese Dodds, shadow
chancellor, was querulous and red
— a boiled tomato. Mr Sunak had
not shown responsibility, tsk tsk.
Then she demanded more spending.
Next contestant please. Could it be?
Yes it was! Jeremy Corbyn (Ind,Islington N) demanded a 10 per
cent rise for civil servants. He must
have been growing things on his
allotment again.
Mr Sunak mentioned “ageing
diagnostic machines”. Did he mean
Sir John Redwood? But Sir John (C,
Wokingham), like some other
Thatcherites, did not speak.
Keeping their powder dry for the
new Covid tiers, perhaps.
We cannot talk yet of Rishi the
Rightie. He improved his
fiscally conservative credentials
only a fraction. He often mentioned
his boss — “the prime minister’s
promises on schools, the prime
minister’s lifetime skills guarantee,
the prime minister’s plan for
climate change”. Loyalty? Or “don’t
blame me, guv”?
A £4 billion “levelling up” fund
means MPs now have another
reason to beg Mr Sunak to look
kindly on their areas. LilianGreenwood (Lab, Nottingham
South) did this but sounded so
unremittingly cheesed off that Mr
Sunak would have been entitled to
tell her to get lost. He didn’t get
where he is today by being
confrontational. “I look forward to
hearing from her,” he lied.
“Video link, Nigel Mills,” said the
deputy speaker. Four words to make
a sketch writer stab himself with his
quill pen. Rebecca Long Bailey
(Lab, Salford & Eccles) popped up
to say it had been an “opprobrious”
spending review. Lady, walk away
from that thesaurus now.
And the aid minister in the Lords
quit. No 10 released the exchange
of letters. Boris’s handwriting was
an unfazed scrawl. My friend
James, ex-Army, had an NCO who
would tell over-proud squaddies:
“Put your fist in a bucket of water.
Now take it out. The size of the
hole is what’s irreplaceable.”Political Sketch
Covid will leave deep scars in
Gurpreet Narwan
Economics Correspondent
Hard times
OBR forecasts
The Christmas decorations were up in an
empty Burlington Arcade in LondonRishi Sunak announced a pay freeze
for public sector workers yesterday
but cushioned the blow by offering
2.1 million of the lowest-paid a raise
of at least £250.
The chancellor said that in the six
months to September private sector
wages had fallen by nearly 1 per
cent while public sector wages had
risen. The government was taking
the “difficult decision” to control
public sector pay, he said, describing
it as a matter of fairness.
About a million NHS workers,
including nurses and doctors, will be
exempt from the freeze in
recognition of their role on the front
line of the pandemic. Another
2.1 million workers who earn less
than the £24,000 median salary will
be guaranteed a pay rise of at least
£250. “What this means is that while
the government is making the
difficult decision to control public
sector pay, the majority of public
sector workers will see their pay
increase this year,” Mr Sunak said.
Ben Zaranko, a research
economist at the Institute for Fiscal
Studies (IFS), said that public sector
workers would not face the same
sweeping freezes as they did after- “This is not the first time that
governments have sought to keep a
lid on public sector pay rises,” he
said. “But unlike in 2010, this will
come on the back of a decade of pay
caps and freezes. Relative to pay in
the private sector, public sector pay
prior to the pandemic was its lowest
point in more than 25 years.”
Union leaders criticised the
decision. Dave Prentis, general
secretary of Unison, said the plan
was “austerity, plain and simple”.
“A decade of spending cuts left
public services exposed when Covid
came calling,” he said. “The
government is making the same
disastrous mistake again. Going
after the pay of millions will be a
bitter pill for key workers getting the
UK going through the pandemic.”
John Apter, chairman of the
Police Federation, called the pay
freeze a “kick in the teeth” for
officers. “Rewarding those who have
played a vital role in the fight
against the virus with a pay freeze is
nothing short of a disgrace,” he said.
“A handful of officers will get the
additional £250... but only those
who are already on an appallingly
low starting salary.”
Mary Bousted, joint general
secretary of the National Education
Union, said the freeze was a “body
blow”, adding: “Education workers
are key workers who have kept the
country going during the pandemic
but pay cuts are their only reward
from this government.”
The chancellor also said he had
accepted recommendations from
the Low Pay Commission, an
independent body, for a 2.2 per cent
increase to the national living wage,
lifting it to £8.91 an hour.
The commission had suggested a
rise of nearly 6 per cent but revised
its recommendation to allow for the
economic circumstances. Bryan
Sanderson, its chairman, said: “We
have opted for a prudent increase
which consolidates the considerable
progress of recent years and
provides a base from which we can
move towards the government’s
target over the next few years.”Pay freeze for public sector
but a boost for low earners
Steven Swinford
Deputy Political EditorNews Spending review