Spending Review: Unemployed predicted to rise to 2.6 million

The number of unemployed people in the UK is expected to surge to 2.6 million by mid-2021, Rishi Sunak has warned.

In his Spending Review, the chancellor said the "economic emergency" caused by Covid-19 had "only just begun".

The government expected to borrow £394bn this year - the "highest" level "in our peacetime history" - he added.

The latest figures show 1.62 million people are unemployed, a number which has risen by more than 300,000 since last year.

In the House of Commons, Mr Sunak said the government would spend £280bn this year "to get our country through coronavirus".

He also announced that most public sector workers would have their pay frozen, with only the lowest paid, as well as nurses, doctors and other NHS staff, getting a salary rise.

And the chancellor said spending on overseas aid, as a proportion of national income, would be 0.5% in 2021-2 - down from the 0.7% currently set in law.

The document accompanying Mr Sunak's statement makes no mention of extending the temporary £20 uplift in Universal Credit beyond next April, but this is expected to be reviewed in the new year.

The last time the UK unemployment figure was as high as 2.6 million was in May to July 2012.

The number exceeded three million from 1983 to 1987 and for a few months in early 1993.

Mr Sunak told MPs the economy was predicted to contract by 11.3% this year - "the largest fall in output for more than 300 years" - and grow by 5.5% next year and 6.6% in 2022.

He added: "Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022. And the economic damage is likely to be lasting."

The government's Covid response, including furlough, has led to huge spending rises, at a time when its income from taxation is down.

Mr Sunak said the UK was expected to borrow £394bn this year, which was predicted to fall to £164bn next year and £105bn in 2022-3.

Some other Spending Review announcements were trailed before his statement, including:

The chancellor had intended - as usual - to set out plans for the next three years, but this was reduced to just one year due to the economic turmoil caused by the pandemic.

For Labour, shadow chancellor Anneliese Dodds said a longer-term spending review was needed soon "to build a future for our country as the best place in the world to grow up in and the best place to grow old in".

She criticised Mr Sunak for not mentioning Brexit in his speech, with the UK set to leave the EU single market and customs area at the end of the year.

Ms Dodds added: "There's still no trade deal. So does the chancellor truly believe that his government is prepared and that he's done enough to help those businesses that will be heavily affected?"

The Office for Budget Responsibility said that if no deal was reached, and the UK and EU had to trade under World Trade Organization rules - including tariffs - this could "reduce real GDP" by 2% in 2021, on top of the damage caused by coronavirus.

The economic shock of the "various temporary disruptions to cross-border trade and the knock-on impacts" would continue for years, it predicted.

But a Treasury spokesman insisted the government was confident about the future of the UK, whatever the outcome of negotiations with Brussels.

He said the chancellor was focussed on Covid, which he described as the "core economic challenge" and "the one that matters today to people's jobs".

Dave Prentis, general secretary of the union Unison, called the pay freeze for most public sector workers "austerity, plain and simple" and a "bitter pill" for those affected.

He added: "A decade of spending cuts left public services exposed when Covid came calling. The government is making the same disastrous mistake again."