TAX rises and spending cuts are on the way in future – as Rishi Sunak will warn the economy is likely to suffer from Covid for the next four YEARS.
The Chancellor will outline his spending review to the nation next week – setting out cash for departments for the next year, but it’s set to be a grim state of the nation’s finances.
Allies told the Financial Times the outlook is set to be “scary”, and will contain the largest downgrade in economic performance since WWII.
The spending plans will show the effects of the pandemic will be felt for years to come, the paper reported.
And it said the Office for Budget Responsibility, which independently produces the government’s forecasts, is expected to predict the UK economy will contract close to 11 per cent in 2020, the worst performance in more than 300 years.
The economy isn’t expected to recover to it’s 2019 levels until 2022 – as a result of shops being shut, businesses going under and less consumer spending.
And it means to plug the huge gap in finances, the Chancellor and PM will face tough economic choices ahead of the next election.
Ministers have splurged £200billion on economic measures during the pandemic so far, and billions more is expected.
Taxes will likely have to rise and spending slashed to pay for it all – but it’s not yet clear where the axe will fall.
The Institute for Fiscal Studies said £40billion a years needed to be raised through taxes and cutting spending in order to start paying back the cash.
The Treasury is not looking to make any major decisions on spending and tax until the coronavirus crisis is in a better state.
One source said the forecasts “are going to be quite scary”. And a Downing Street official added: “It’s not looking pretty.”
It comes as today the PM launched a spending spree on defence, pumping £4billion of extra cash in per year over the next four years.
More cash will be spent on Britain’s space programme, cyber security and AI to put the UK on the world stage as it leaves the EU.
But the Government hasn’t yet said how the spree will be paid for.