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Rishi Sunak goes on UK spending spree after growth upgrade

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LONDON — Rishi Sunak set out a U.K. budget peppered with spending giveaways thanks to better-than-expected growth figures — but insisted he’s still a small government fan.

The U.K. chancellor front loaded good news in his statement to the House of Commons, boasting: “Employment is up. Investment is growing. Public services are improving. The public finances are stabilizing. And wages are rising.”

Britain’s fiscal watchdog, the Office of Budget Responsibility (OBR), now expects the U.K. economy to return to its pre-COVID level at the end of this year, with GDP growth of 6.5 percent in 2021, revised up from 4 percent.

Those upgrades allowed the chancellor to promise big, with Sunak pledging a budgetary increase for every government department. Total departmental spending will increase over the parliamentary term to 2025 by £150 billion, a 3.8 percent a year real-terms increase.

That includes almost £2 billion of new catch-up funding for schools — an amount that’s still well below the £15bn asked for by the government’s former education tsar who quit amid a row with Sunak — and £4.8 billion for pandemic-hit local councils.

The biggest rabbit out of Sunak’s hat was a more significant change to universal credit, the U.K.’s most widely-used welfare payment, allowing recipients to take home more of their pay. It follows a backlash from MPs and campaigners over an earlier decision to cut back a pandemic increase in the amount given to claimants. The government is also increasing the minimum wage, and paring back alcohol duties and taxes on domestic flights amid concern from his own MPs about the cost of living.

Sunak confirmed two more years of lower aid spending after cutting it back earlier this year. But he signaled an end to that restraint, with the foreign aid budget set to return to 0.7 percent of gross national income by 2024-2025.

The chancellor wound up his speech by trying to shore up his free-market credentials, telling MPs “government should have limits” and arguing personal responsibility is “more important than the market or the state.” Government, he said, would be “measured not by billions we spend, but by the outcomes we achieve and the difference we make to people’s lives.” He dangled the prospect of party-pleasing tax cuts towards the end of the parliament, but did not give details.

Sunak also threw down the gauntlet to the Labour opposition by announcing he will put new fiscal rules to a vote in the Commons. Those will commit the government to paying down debt and ensuring day-to-day spending is funded through tax.

One bleaker spot trailed by the chancellor was that growth is predicted to slow after a post-COVID boost, shrinking to 2.1 percent in 2023 and 1.3 percent in 2024. Amid cost of living jitters, inflation will average 4 percent over the next year, the OBR predicted.
 
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