Rishi Sunak to unveil £4.3 billion package to get one million back into work

Gordon Rayner
·6-min read
Rishi Sunak works on his Spending Review speech in his flat at Number 11 Downing Street - Simon Walker/ HM Treasury
Rishi Sunak works on his Spending Review speech in his flat at Number 11 Downing Street - Simon Walker/ HM Treasury
Coronavirus Article Bar with counter
Coronavirus Article Bar with counter

Rishi Sunak will on Wednesday unveil a £4.3 billion New Deal-style package to get one million people back into work amid warnings that unemployment could continue rising until next summer.

The Chancellor will promise that no one will be left "without hope or opportunity" after redundancies reached record levels.

The Office for Budget Responsibility, the Treasury's watchdog, is expected to predict that unemployment, currently at 4.8 per cent, could go as high as eight per cent by the summer – after the end of the furlough scheme – before it starts to fall.

The OBR is also expected to forecast that the economy will have shrunk by 10 per cent by the end of this year – the worst performance in 300 years. The Resolution Foundation think tank believes the OBR will forecast a permanent reduction of three per cent in the UK's GDP due to the economic "scarring" of coronavirus – the equivalent of £1,000 per person.

Public service spending is on course to reach 60 per cent of GDP this financial year, a level not seen since the Second World War, with the cost of Covid predicted to rise to £400 billion by the end of the year.

Mr Sunak's decision to find billions of pounds for jobs support in Wednesday's Spending Review will be seen as an acknowledgement that the unemployment crisis has a long way to go.

The Chancellor will pledge to "create and support" hundreds of thousands of jobs through tens of billions of pounds of investment in infrastructure, including roads, houses, railways and cycle lanes.

A £2.9 billion Restart scheme will help the long-term unemployed to find jobs by giving them "intensive, tailored" support to meet their individual circumstances. Another £1.4 billion will be allocated to Job Centres, helping the short-term unemployed back into work.

Mr Sunak will also extend the apprenticeship hiring incentive – which pays employers £2,000 for every new apprentice they hire – to the end of March, when the new tier system of Covid restrictions will end. The jobs schemes will effectively replace the furlough scheme, which finishes on March 31.

He is expected to announce a freeze on public sector pay to help claw back some of the cost of Covid support, as well as reducing foreign aid spending from 0.7 per cent of national income to 0.5 per cent.

Timeline | Financial support measures to fight coronavirus
Timeline | Financial support measures to fight coronavirus

The Spending Review, which was originally intended to cover the next three years of Government finances, will only cover the next year because of the financial uncertainty created by the coronavirus crisis.

It is not expected to contain any tax rises, which will be put off until at least the next Budget, which will come before the end of the current financial year. 

However, with the OBR expected to publish a series of dire forecasts, Mr Sunak is likely to leave little doubt that rises will be inevitable in the near future.

He said his "number one priority is to protect jobs and livelihoods across the UK", adding: "This Spending Review will ensure hundreds of thousands of jobs are supported and protected in the acute phase of this crisis and beyond, with a multi-billion package of investment to ensure that no one is left without hope or opportunity."

Earlier in the year, the Chancellor launched the Kickstart scheme, aimed at getting 18 to 24-year-olds into work, which will receive £1.6 billion of funding in 2021-22. It aims to create 250,000 Government-subsidised jobs.

He will also confirm a £375 million package to support skills by offering people training to change career.

The announcements will draw comparisons with Franklin D Roosevelt's New Deal policy of the 1930s, which was designed to get Americans back to work through major investments in public works after the Great Depression.

A Treasury source said the "concept" bore some similarities to the New Deal but it did not merit comparison in terms of scale, as the New Deal cost the equivalent of £600 billion in today's terms.

The Department for Work and Pensions has released an impact assessment of the Work Programme set up for the long-term unemployed by David Cameron's administration in 2011.

It found that job seekers who enrolled on the programme spent on average 17 more days in employment and 26 fewer days in receipt of benefits over a two-year period.

On Monday night, the Institute of Employment Studies said it expected up to 200,000 people who began claiming benefits during the pandemic to have reached long-term unemployment by the summer, when the Restart programme is likely to roll out.

This would be nearly double the number of people referred during the first few months of the 2011 Work Programme, which was the largest employment scheme in history. 

Tony Wilson, the IES director, said: "In our view, this programme needs to be in place by next summer at the latest. It needs to guarantee that all of those on the programme will get specialist, frequent and one-to-one support, and there needs to be substantial funding for re-training and other support – either through the programme or alongside it."

Treasury insiders have confirmed that Mr Sunak will not be extending the £20 weekly uplift in universal credit, with a final decision not expected until March.

He is currently studying proposals to align Capital Gains Tax (CGT) with income tax, as recommended by the Office for Tax Simplification, which would see the levy hiked to 45 per cent for higher and additional taxpayers.

Rishi Sunak is looking at plans to align Capital Gains Tax with income tax - Simon Walker/ HM Treasury
Rishi Sunak is looking at plans to align Capital Gains Tax with income tax - Simon Walker/ HM Treasury

However, Government insiders believe the Chancellor is likely to "come through the middle" and lift the highest rates from 20 per cent to 30 per cent, although any decision is unlikely to be taken for several months. Reforms to the various reliefs that apply to CGT, including entrepreneurs' relief, are also likely to be considered.

He is also looking at scrapping higher rates of pensions tax relief and introducing a flat rate of 25 per cent, in a move likely to save the Exchequer between £4 billion and 10 billion a year.

However, in a letter to Mr Sunak on Tuesday night, more than 40 Conservative MPs urged him to avoid hiking taxes and to focus instead on pro-growth policies as a means of raising revenues and getting control of the public finances.

Organised by Marcus Fysh MP, who has formed a new Economic Growth Group in Parliament, the letter warns that hiking CGT would be a "serious mistake" which would "jeopardise our chance of encouraging economic recovery".

"Signalling other big tax rises instead of liberalising reform will also damage confidence and reduce growth and revenue," it says, with other signatories including the former Tory leader Sir Iain Duncan Smith, ex-Brexit minister Steve Baker and former shadow attorney general Sir Bill Cash.