The Revolutionary Communist Group – for an anti-imperialist movement in Britain

Coronavirus crisis: who will pay?

Rishi Sunak

The health emergency created by the coronavirus pandemic is not yet over and the economic devastation it is causing has barely begun. Global debt increased by $15 trillion this year and is on the way to exceeding $277 trillion in 2020, 365% of global GDP after rising from 320% at the end of 2019. This is unsustainable. In emerging market economies debt has risen by 26 percentage points so far this year to approach 250% of GDP. In mid-November Zambia became the sixth country to default or restructure debts in 2020. More defaults are likely as the impact of the pandemic mounts. The IMF expects global growth to be negative this year and the worst since the Great Depression of the 1930s. Britain cannot escape such developments. DAVID YAFFE reports.

A sharp decline in tax receipts and additional costs from government subsidies for jobs, businesses and self-employment as the pandemic continued to spread, drove public sector net borrowing in October 2020 to £22.3bn, £10.8bn more than in October 2019, and the highest level for October since records began in 1993. This extra borrowing has seen the accumulated public sector net debt rise to around £2,076.8bn at the end of October, larger than the estimated size of the UK economy at 100.8% of GDP. 

Spending Review 2020

The Chancellor of the Exchequer Rishi Sunak delivered his one-year Spending Review on 25 November 2020. He told us ‘our economic emergency has only just begun’ and the economic outlook spelled this out. The Office for Budget Responsibility (OBR) has forecast that the second wave of coronavirus and the associated economic and social restrictions will cause a double-dip recession in the final quarter of 2020, with GDP down by 11.3% for the year, the largest fall in output for more than 300 years. Unemployment is expected to rise to 7.5% in the second quarter of 2021, around 2.6 million workers, nearly twice the pre-pandemic level, devastating the lives of millions more working people. 

Aware of the dangerous social and political consequences of this emerging reality for the ruling class, Sunak was forced to embellish his spending plans. His first priority, he said, is ‘to protect people’s lives and livelihoods’. In 2020-21, he told us, ‘we are providing £280bn to get our country through coronavirus’. Next year, Sunak says, to fund our programmes on testing, PPE, vaccines, we are allocating an initial £18bn. The second priority is stronger public services. £3bn would go to support NHS recovery allowing a million scans, checks and operations to be carried out; £2bn to keep our transport arteries open, subsidising rail networks; over £3bn to local councils; an extra £250m to help end rough sleeping and a ‘Levelling Up Fund of £4bn’, which any local council would be able to bid for directly to fund local projects. Next year the health budget would grow by £6.6bn, he said, ‘allowing us to deliver 50,000 more nurses and 50 million general practice appointments.’ The government will ‘fund the biggest hospital building programme in a generation – building 40 new hospitals and upgrading 70 more’. And so he went on, knowing full well that all this largesse would have to be paid for, including the over £24bn investment in defence over the next four years, ‘the biggest sustained increase in 30 years’, that his Prime Minister Boris Johnson had announced a week earlier. 

His final priority in this increasingly fantastical menu of spending commitments ‘is to deliver our record investment plans in infrastructure’. Next year capital spending will total £100bn – £27bn more in real terms than last year, ‘the highest sustained level of public investment for 40 years.’ Sunak claims he will confront the ‘economic emergency that has only just begun’ with ‘once-in-a generation plans to deliver once-in-a-generation returns for our country.’ His list goes on: a £7.1bn National Home Building Fund; a £12.2bn Affordable Homes Programme; faster broadband for over five million premises across the UK; better 4G mobile coverage across the country by 2025; the biggest investment in new roads, upgraded railways, new cycle lanes and over 800 zero emission buses. His capital plans will invest in the greener future, delivering the Prime Minister’s ten-point plan for climate change. In a final flourish he tells us that ‘We’re making this country a scientific superpower’ with almost £15bn of funding for research and development, establishing a new UK infrastructure bank working with the private sector to finance their plans. 

The loud noises and extravagant claims in the Spending Review are political posturing designed to sustain an incompetent and corrupt Tory Party in office. It will not survive the social and political consequences of the deep crisis of British capitalism. 

The facts on the ground

The £280bn emergency spending in 2020-21 to ‘protect people’s lives and livelihood’ accounts for three-quarters of the record rise in borrowing and will see the government deficit at £394bn in 2020-21, some 19% of GDP, and is already approaching the levels reached during two world wars – 27% in 1941-2 and 28% in 1916-17. Total managed government expenditure was 39.8% of GDP in 2019-20. It is expected to reach 56.3% of GDP in 2020-21, a level only surpassed during World War Two. This level of public spending is unacceptable to a Tory government that is committed to a ‘small’ state. It has plans to reduce it to around 42% of GDP from 2022-23 onwards, whatever the social and political consequences.

Even with the optimistic outlook for economic growth over the next few years put forward in the Spending Review, 5.5% in 2021 and 6.6% in 2022, economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022. The economic damage, says Sunak, will be lasting. ‘Long-term scarring means, in 2025, the economy will be around 3% smaller than expected in the March [2020] Budget.’

Sunak had little choice but to extend the government’s employee and self-employed furlough scheme until March 2021. He cannot end it until the economy starts to grow out of the recession and unemployment begins to fall. By mid-November the costs of the furlough scheme had reached £43bn and the self-employed job support scheme £13.7bn. These costs will continue to rise.

The accumulated public sector net debt will also grow. It is forecast to peak at 109% of GDP in 2023-24. Sunak’s room for manoeuvre is severely restricted.

Tory dreams of a global Britain

In early October Prime Minister Boris Johnson in a speech to the Conservative Party conference promoted the private sector of the British economy, saying ‘free enterprise must lead the recovery from the coronavirus pandemic’. He warned about the extent of state intervention and said ‘there comes a moment when the state must stand back and let the private sector get on with it. We must not draw the wrong economic conclusions from this crisis’.

On 18 November Boris Johnson announced a huge funding boost for the Ministry of Defence. It is being hyped as the biggest investment programme in the country’s armed forces since the end of the Cold War. It will amount to £24bn over the next four years. The Prime Minister said he had to boost spending on the armed forces ‘in the teeth of the pandemic’ because ‘the defence of the realm must come first’. He told the House of Commons the next day he wanted Britain to be Europe’s leading naval power and said the budget boost would help equip the Ministry of Defence with swarms of drones and ‘directed energy weapons’. The Labour Party reinforced these imperialist ambitions in responding that the spending announcement is ‘a welcome and long overdue upgrade in Britain’s defences after a decade of decline’. 

For the Tory Party the state has the role of enabling and promoting the private sector. The state must ‘step back’ while the private sector extends Britain’s reach domestically and globally. Brexit, not mentioned in the Spending Review, remains an essential pillar of this nationalist ideology. With Brexit talks stalled, the OBR predicts that World Trade Organisation terms, in the event of a no-trade agreement, would reduce GDP by a further 2% at the start of 2021. A leaked cabinet office briefing said that the UK faces a strong possibility of systemic economic crisis as it completes its exit from the EU. These are the parameters in which Chancellor Sunak must work.

Who will pay?

A malevolent warning is contained in the Spending Review. Sunak claims that it was only strong public finances that allowed the government to respond to the economic impact of the coronavirus crisis. Having done this, ‘we have a responsibility once the economy recovers to return to a sustainable fiscal position’.

So who will pay? Public sector workers who have endured a decade of pay restraint are to face real term cuts in their wages next year. Sunak said he cannot justify ‘a significant across the board pay increase for all public sector workers’ when many people in the private sector have lost their jobs, been furloughed or had pay and hours cut. In a divide and rule strategy he said that nurses, doctors and some other NHS workers will still receive a pay rise next year and public sector workers earning below the national median wage of £24,000 will also receive at least an extra £250. For the rest of the 5.5 million strong public sector workforce, the government will freeze headline pay awards in 2021-22, and wages will not rise in line with inflation. 

For low paid workers universal credit continues to be capped and the £20 uplift on the basic rate will expire in April 2021, with such workers set to lose more than £1,000 a year. At the same time the maximum amount of help on offer to private renters is set to be frozen in cash terms. Tax rises for the wealthy were not considered.

In an act of pure chauvinism Sunak scrapped the Tory manifesto pledge to spend 0.7% of its GDP on aid. The aid budget was reduced to 0.5% of GDP, saving £4bn at the expense of the world’s poorest nations. This at a time when it is known that Covid-19 has hit the least developed countries so hard that up to 32 million people could be pushed into extreme poverty.

Where he did show a spending priority was in giving the Home Office a £1bn boost, which includes £400m to fund 20,000 extra police officers. The Ministry of Justice will receive £337m, including £275m to handle a greater number of court cases, expected as police numbers rise. Additionally, the government has pledged £1.25bn of new money to create 18,000 prison places.

Clearly the government is preparing the ground for the battles ahead, as working class opposition grows to the unprecedented crisis of capitalism exposed by the coronavirus pandemic. We have been warned and must organise our resistance.


1. For a discussion of the first six months of the pandemic in the UK see David Yaffe ‘British economy Covid, Brexit, Crisis’ FRFI 278 October/November 2020 on our website at https://tinyurl.com/yxf462ys 

2. The Office for Budget Responsibility is a non-departmental public body funded by the UK Treasury, that the UK government established to provide independent economic forecasts and independent analysis of the public finances.

3. Details from the transcript of his Spending Review 2020 speech.

4. Much of the detail which follows comes from the Spending Review and the commentary on it in the Financial Times and The Guardian over this period.

FRFI 279 Dec 2020 / Jan 2021

 

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