Britain prepares for a post-pandemic economy, and keeps spending.

“A new age of optimism” is coming, said Chancellor Rishi Sunak, while inflation and shortages still bedevil the country.


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Britain prepares for a post-pandemic economy, and keeps spending.

Rishi Sunak, the British chancellor, addressing the House of Commons on Wednesday.Credit…Agence France-Presse, via Pru– Getty Images

Oct. 27, 2021, 11:03 a.m. ET

LONDON — Britain’s top finance official laid out a vision for the country’s post-pandemic economy on Wednesday as he announced plans to spend on education, the national health service and job skills. But his plans risk being overshadowed by the recent rise in inflation and supply chain disruptions that are weighing on the pandemic recovery.

“Today’s budget does not draw a line under Covid, we have challenging months ahead,” Rishi Sunak, the chancellor of the Exchequer, told lawmakers in Parliament on Wednesday. “But today’s budget does begin the work of preparing for a new economy post-Covid.” This would be an “economy fit for a new age of optimism,” he added.

The chancellor made the case for optimism even as the country approaches what is expected to be a difficult winter for many households and uncertainty about the path of the pandemic.

Inflation is predicted to climb above 4 percent, potentially peaking around 5 percent, while jumps in energy prices have hit household bills. There are lingering supply chain disruptions and shortages, and the poorest families have seen one of their main government benefits cut back. The number of coronavirus cases has started to climb again — averaging above 46,000 daily cases recently, up from about 2,000 last summer — increasing pressure on the government to reimpose some restrictions such as mandatory face masks, vaccine passports and advising people to work from home.

Mr. Sunak said rising prices was a global problem created by economies unlocking and demand for goods increasing more quickly than businesses and their supply chains could manage.

“I understand people are concerned about global inflation,” Mr. Sunak said. “But they have a government here at home ready and willing to act.” He reiterated the Bank of England’s remit to keep inflation “low and stable.” The central bank aims for an annual rate of 2 percent.

The Office for Budget Responsibility, which provides independent economic and fiscal forecasts for the government, said on Wednesday that supply bottlenecks in Britain had been “exacerbated by changes in the migration and trading regimes following Brexit.” Over the next few quarters, labor shortages, higher energy prices and supply chain blockages will hold back economic growth and push up inflation, potentially to its highest level in three decades, the agency said.

Still, it upgraded its forecasts for economic growth and lowered its borrowing predictions.

Many of Mr. Sunak’s biggest policy decisions were announced in the days before his presentation to Parliament, including tens of billions of pounds in spending on the National Health Service and public transport, and a nearly 7 percent increase in the minimum wage to GBP9.50 ($13.05). Other spending includes plans to build homes on brownfield sites, and more money for skills qualifications for young people and adults.

Among the announcements made on Wednesday were tax relief for research and development spending; a 50 percent discount on business rates, which is a type of property tax, for retail and hospitality businesses; a revamped tax arrangement for alcoholic drinks that will result in cheaper draft beer and sparkling wine; tax relief for museums and theaters; and a GBP1.4 billion investment fund.

Mr. Sunak also announced the outcome of the spending review, which lays out the government’s spending priorities for different departments over the next three years. It had been postponed last year because of the pandemic.

Mr. Sunak is also trying to balance his own instincts to be fiscally cautious and pull back borrowing after it reached wartime levels against the desires of Prime Minister Boris Johnson, who has proclaimed that Britain is on its way to being a high-wage, high-productivity economy, and who is willing to spend to reach that goal and to “level up” the country, which has suffered from long-term regional inequalities.

“Last year, the state grew to be over half the size of the total economy,” Mr. Sunak said. “Taxes are rising to their highest level as a percentage of G.D.P. since the 1950s. I don’t like it, but I cannot apologize for it.” He said this had to be done because of the size of the crisis caused by the pandemic.

“But now we have a choice,” he added. “Do we want to live in a country where the response to every question is, ‘What is the government going to do about it?'”

But for now, Mr. Johnson’s instincts to spend have persevered. Government departmental spending will increase nearly 4 percent a year by the end of 2024. “Every department will see a real terms rise in overall spending,” Mr. Sunak said.

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