Article/Speech on UK Spending Review 2020
Rishi Sunak’s statement/speech to the House of Commons Analysis:
The chancellor’s speech describes the effects of the coronavirus within the last year, and what they have spent their money on, whilst also outlining their aspirations on dealing with the crisis and the ‘economic emergency’ which is to follow. Sunak explains how they are going to utilize their fundings in the best way possible, aiming to ‘protect’ people’s lives and prioritize ‘jobs, businesses and public services,’ which in my opinion, is a very positive way of funding the current economic issues.
One issue that Sunak addressed was the lives of public sector workers, with a predicted drastic surge in unemployment to 2.6 million people (7.5%) in the second quarter of 2021. Consequently, he decided to prevent pay rises for many people working in the private sector in order to maintain jobs. This is because if pay rises continued to occur, many companies would have been forced to let go many workers as a result of their salaries being too expensive to maintain profits. Furthermore, a continuation of pay rises would lead to an increase in the cost of production for many companies, decreasing their the economy’s aggregate supply and shifting AS left, decreasing the UK’s real GDP. Nevertheless, the lower waged workers are gaining from the spending review, with pay rises of at least £250 being given to workers who earn below the median wage of £24,000. Furthermore, the national living wage was increased by 2.2% benefitting around 2 million people, accompanied by the pay rises provided to over 1 million doctors and nurses working for the NHS. Therefore, although many public sector workers are not gaining pay rises, this is beneficial to the economy as it would reduce unemployment, one of the main macroeconomic objectives, and the benefits which will be given to NHS workers, and workers on the lower end of the wage rate seem extremely beneficial to their lives, reflecting the positive attitude of how the government are allocating their scarce resources.
Sunak continues to explain other ways in which the government are allocating their spending, to build and improve schools, hospitals and ‘investment in infrastructure.’ The funding for the criminal justice system will increase by billions, leading to an increase in recruitment and the number of prisons. £/1.5 billion is being provided to improved universities, and £291 million to pay for more young people to go into further education. The aid to infrastructure will create more jobs and therefore increase effective demand, increasing consumption, which makes up 60% of AD, shifting the curve to the right and consequently increasing real GDP. Furthermore, in the long term, the government funding to education will lead to more skilled workers and entrepreneurship which would also result in a long-term shift in AS to the right, increasing GDP further. Therefore, I think the addressing of the British people’s priorities — New hospitals, better schools, safer streets is a very positive and necessary way of allocating their money.
The Article Analysis on the ‘UK borrowing to hit record £394 billion,’ :
The article describes how the UK is due to hit a peacetime record of £394 borrowed this year to combat the pandemic. It says that Sunak showed how the UK faced an 11.3% fall in GDP, the largest fall in output in over 300 years, which reflects the disastrous impacts the pandemic had on the UK’s economy. This is because as citizens were in lockdown, in nervous times, shops were closed and consumer confidence was extremely low, leading to a drastic decrease in consumption, making up about 2/3s of AD, shifting AD left, leading to a fall in GDP. Furthermore, aggregate demand would also shift left due to the lack of supply occurring (as a result of safety precautions) reducing the UK’s GDP even further. This emphatic statistic reflects how far the UK economy has fallen, despite the large increase in government spending. It continues to discuss the potential damages to the UK’s GDP, warning that the GDP could take a further 2% fall if they are without a new deal with Brussels by the new year.
Overall, the UK spending review 2020 did outline the disastrous economic impacts the coronavirus pandemic had on workers and the UK’s overall economy, but it also displayed their aspirations of the most beneficial ways of allocating their funding and how they can help the most people, which, in my opinion, is the best they can do at this stage of the recovery.
