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UPDATE 2-UK's Sunak: no return to austerity in new spending plan

22 Nov 2020 / 20:10 H.

    * Sunak to announce one-year spending plan on Wednesday

    * More funding coming for public services

    * Says now is not the time to rein in borrowing

    * Expected to announce freeze on public sector pay (Adds comments, background)

    By William Schomberg and Paul Sandle

    LONDON, Nov 22 (Reuters) - British finance minister Rishi Sunak said there would be no return to austerity in a spending plan he will announce on Wednesday, even as the coronavirus crisis pushes the country's debt further above 2 trillion pounds ($2.7 trillion).

    Sunak, who has rushed out massive government spending increases and tax cuts equating to about 10% of economic output, said he would announce "quite a significant" increase in funding for public services.

    "You will not see austerity next week," Sunak told Sky News on Sunday, saying his priority in the one-year spending plan was to fight the health and economic crises.

    More than 3 billion pounds will be set aside in extra help for the health service.

    Economists think Britain will borrow about 400 billion pounds ($531 billion) this year, approaching 20% of gross domestic product, the most since World War Two.

    It would be nearly double the hit from the global financial crisis, which took a decade to work down, and some lawmakers in Prime Minister Boris Johnson's Conservative Party want more fiscal restraint now.

    Sunak said forecasts to be published on Wednesday would show the "enormous strain" on the economy and now was not the time to cut back on spending or raise taxes.

    "Once we get through this crisis we need to think more about returning to a more normal path," he told Times Radio. "But as of now we are able to do what we need to do and we are able to do that at an affordable cost."

    Though yields on government debt remain close to record lows, Sunak is expected to announce a freeze on public sector pay to offset some of his spending.

    "When we think about public pay settlements, I think it would be entirely reasonable to think about those in the context of the wider economic climate," he said.

    Sunak also said he would announce longer-term measures to boost infrastructure spending, part of Johnson's promise to spread economic growth to regions that lag behind London and the southeast.

    Britain also faces the risk of an economic shock if it fails to strike a trade deal with the European Union in time for the Dec. 31 expiry of its post-Brexit transition.

    Sunak said the government wanted to get a deal but the short-term impact of not doing so would pale by comparison with the hit from the COVID-19 pandemic.

    ($1 = 0.7529 pounds) (Reporting by William Schomberg Editing by Raissa Kasolowsky and David Goodman)

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