Rishi Sunak will on Wednesday set out a £4.3bn plan to tackle the threat of mass unemployment as the chancellor braces Britain for the brutal economic fallout from the coronavirus crisis.
Mr Sunak will tell MPs in his spending review that his “number one priority is to protect jobs and livelihoods”.
The chancellor is due to say that now is not the right time to begin fiscal consolidation, even as he publishes what government officials admitted were “scary” new forecasts showing the economic destruction caused by the Covid-19 pandemic.
The Office for Budget Responsibility’s forecasts are expected to show much higher unemployment and unsustainable public finances.
Britain’s fiscal watchdog is set to warn that after the Covid-19 slump in output this year, with huge government expenditure and weak tax revenues, the public finances will still be under pressure at the time of the next general election in 2024. UK public debt in August topped £2tn.
Officials suggested the forecasts will show a hole of about £40bn in the finances that will need to be filled by higher taxes or an unexpectedly strong recovery from the economic downturn.
Boris Johnson, prime minister, has ruled out a return to “austerity” in public spending and on Wednesday Mr Sunak will announce tens of billions of pounds of capital investment intended to create jobs by building roads and houses and through green energy schemes.
Mr Sunak wants to give the private sector time to recover before he starts clawing back some of the money spent during the pandemic. Tax rises are expected in his Budget next year.
But he will take modest first steps in reining in spending on Wednesday, setting out plans to save an estimated £4bn a year from the overseas aid budget, along with a public sector pay freeze that could secure £4bn after three years. NHS staff will be exempted.
Mr Sunak is expected to claim that cuts in overseas aid reflect the “priorities” of ordinary Britons while the public sector pay freeze is “fair” because it mirrors tight wage settlements in the private sector.
The chancellor’s aides said that “jobs, jobs, jobs” would be at the heart of his spending review — which will set one-year spending totals for most government departments — as he tries to avert mass unemployment.
The latest official statistics show that an estimated 1.6m people were unemployed in the three months to September — 318,000 more than a year earlier. The unemployment rate stands at 4.8 per cent of the workforce.
With many companies pressing ahead with redundancy plans, unemployment is set to rise further in the coming months.
The Bank of England said in its latest forecasts — made after the chancellor announced the extension of the government’s furlough scheme until March — that unemployment could peak at about 7.75 per cent in the second half of 2021.
Mr Sunak will announce £2.9bn of spending over three years on a “Restart” programme to help Britons find jobs, plus £1.4bn of new funding to increase the capacity of the Jobcentre Plus network to help more people back to work.
The Restart scheme, offering regular and intensive “tailored” job support, is particularly aimed at older workers who are most likely to be left facing “the scarring effects” of long-term unemployment.
“We were slow to tackle this problem after the 2008 financial crash,” said one Treasury insider. “This time we want to tackle the problem early, avoiding the effects on livelihoods, families and mental health.”
The injection of £1.4bn to expand Jobcentre Plus capacity will go some way to reverse cuts made since 2015.
The £2.9bn Restart scheme — which will offer intensive job support to people who have been out of work for more than 12 months — is a near-replica of a work programme put in place by the coalition government.
The Department for Work and Pensions published an evaluation of that programme on Tuesday showing that a model in which private sector providers were paid according to job outcomes had led to people spending less time on benefits and more time in work — although there was still a sizeable group doing neither.
Stephen Evans, director of the Learning and Work Institute, a research body, said a new version of the work programme would need to be more locally tailored, and better integrated with support for skills.
“While effective employment support is vital . . . it must be part of a wider plan to get the economy going again, restarting growth and supporting job creation,” he added.
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