UK Sunak: No return to austerity in new spending plan

© Reuters. FILE PHOTO: British Chancellor of the Exchequer Rishi Sunak speaks at the House of Commons in London

By William Schomberg and Paul Sandle

LONDON (Reuters) – UK Treasury Secretary Rishi Sunak said there would be no return to austerity in a spending plan he will announce on Wednesday even if the coronavirus crisis keeps the country's debt above £ 2 trillion , $ 7 trillion).

Sunak, who has accelerated massive government spending hikes and tax cuts equivalent to about 10% of economic output, said he would announce a "fairly significant" increase in public services funding.

"You won't see any austerity measures next week," Sunak told Sky News on Sunday. Combating the health and economic crisis is his priority in the annual spending plan.

More than £ 3 billion is being allocated for additional health care assistance.

Economists estimate the UK will borrow around £ 400 billion ($ 531 billion) this year, which is nearly 20% of GDP, the highest since World War II.

It would be almost twice as much as the global financial crisis that lasted a decade, and some lawmakers in Prime Minister Boris Johnson's Conservative Party now want more fiscal restraint.

Sunak said projections to be released Wednesday would show the "enormous burden" on the economy and that this is not the time to cut spending or raise taxes.

"Once we are out of this crisis, we need to think more about going back to a more normal path," he told Times Radio. "But from now on we can do what we have to do and at an affordable cost."

Although sovereign debt yields remain near record lows, Sunak is expected to announce a public sector wage freeze to offset some of its spending.

"When we think about public payslips, I think it is perfectly reasonable to think about them in the context of the general business climate," he said.

Sunak also said he would announce longer-term measures to increase infrastructure spending, part of Johnson's promise to spread economic growth to regions lagging behind London and the Southeast.

The UK is also at risk of economic shock if it fails to conclude a trade deal with the European Union in time for its post-Brexit transition on December 31st.

Sunak said the government wanted to get a deal, but the short-term effects of failing to do so would pale in comparison to the aftermath of the COVID-19 pandemic.

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