THE economic emergency caused by coronavirus has only just begun and there will be “lasting damage” to the UK, Chancellor Rishi Sunak said as he set out his Spending Review.

Official forecasts showed the UK economy was expected to shrink by 11.3 per cent this year, the worst recession for more than 300 years.

The Chancellor told MPs that the Office for Budget Responsibility did not expect the economy to return to its pre-crisis levels until the end of 2022 and the damage was likely to last.

The “long-term scarring” would mean that in 2025 the economy will be around three per cent smaller than expected in March.

Mr Sunak said: “Our health emergency is not yet over. And our economic emergency has only just begun.

“So our immediate priority is to protect people’s lives and livelihoods.”

During his speech, Mr Sunak said the minimum wage will increase by 2.2 per cent to £8.91 an hour, with this rate extended to those aged 23 and over.

He said: “Taken together, these minimum wage increases will likely benefit around two million people.”

On departmental spending, the Chancellor said it will total £540 billion next year before noting: “Over this year and next, day-to-day departmental spending will rise, in real terms, by 3.8 per cent – the fastest growth rate in 15 years.”

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The chancellor also announced a pay freeze for all public sector workers, with the exception of the NHS.

He told MPs: “Taking account of the pay review bodies’ advice, we will provide a pay rise to over a million nurses, doctors and others working in the NHS.

“Second, to protect jobs, pay rises in the rest of the public sector will be paused next year. But third, we will protect those on lower incomes. The 2.1 million public sector workers who earn below the median wage of £24,000, will be guaranteed a pay rise of at least £250.”

The Chancellor said the “majority” of public sector workers will see their pay increase next year.

Through the Barnett formula, a further £1.3 billion of funding was announced for the Welsh Government.

Here are the key points from his 25-minute speech on Wednesday:

  • Mr Sunak said the Government was providing £280 billion this year to get the country through the coronavirus crisis.
  • The Office for Budget Responsibility (OBR) is forecasting the economy will contract this year by 11.3 per cent – the largest fall in output for more than 300 years.
  • The OBR expects the economy to start recovering once Covid restrictions are lifted, growing by 5.5 per cent next year, 6.6 per cent in 2022, then 2.3 per cent, 1.7 per cent and 1.8 per cent in the following years.
  • The pandemic is likely to have caused “long-term scarring”, meaning in 2025, the economy will be around three per cent smaller than expected in the March Budget.
  • The UK is forecast to borrow a total of £394 billion this year, equivalent to 19 per cent of GDP – the highest recorded level of borrowing in peacetime history, according to Mr Sunak.
  • Underlying debt is forecast to be 91.9 per cent of GDP this year and is predicted to continue rising, reaching 97.5 per cent of GDP in 2025/26.
  • The OBR expects unemployment to peak at 7.5 per cent in the second quarter of 2021 – 2.6 million people.
  • The Chancellor announced that NHS doctors and nurses in England will receive a pay rise, but pay rises in the rest of the public sector will be “paused” next year.
  • The 2.1 million public sector workers in England who earn below the median wage of £24,000 will be guaranteed a pay rise of at least £250 next year, however.
  • The National Living Wage will increase by 2.2 per cent to £8.91 an hour.
  • Total Government department spending next year will be £540 billion, with day-to-day departmental spending rising, in real terms, by 3.8 per cent.
  • The overseas aid budget will be cut to 0.5 per cent of gross national income in 2021 but Mr Sunak said the Government’s “intention” was to return to 0.7 per cent when the fiscal situation allows.
  • A new UK infrastructure bank – headquartered in the north of England – to finance major new projects in England is set to be established.
  • A £4 billion “levelling up” fund to finance local infrastructure improvement projects in England will also be created, Mr Sunak said.
  • The Chancellor said that through the Barnett formula, Scottish Government funding will increase by £2.4 billion and Welsh Government funding by £1.3 billion, with £0.9 billion for the Northern Ireland Executive.