BUSINESS leaders and economists described the UK Government pandemic spending review as “grim reading” that signals “high levels of public debt for many years to come” amid limited short-term gains.

Aspects of the review such as a national infrastructure strategy and shared prosperity fund were welcomed on the proviso that there is close co-operation with business to ensure best use of funds, as the extent of the damage to the economy from coronavirus began to become more clear.

The UK economy will shrink by its largest amount for 300 years and Government borrowing reach levels previously unseen except during wartime.

Chancellor Rishi Sunak said there would be lasting damage with the economy contracting by 11.3 per cent in 2020 and not recovering to pre-crisis levels until the end of 2022, while unemployment is forecast to hit 2.6 million by the middle of 2021.

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The “long-term scarring” from the crisis means that in 2025 the economy will still be around 3% smaller than had been expected in March this year, Mr Sunak said.

The Chancellor said: “Our health emergency is not yet over, and our economic emergency has only just begun.”

Mr Sunak said £280 billion was being spent on the coronavirus response this year.

The Scottish Government’s funding will increase by £2.4bn while the UK Shared Prosperity Fund - replacing European Union funding - will reach around £1.5bn a year.

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said that “the forecast for job losses despite £280bn worth of support thus far should focus all minds on the toll this virus has taken on people’s lives and livelihoods”.

She added: “The launch of UK Shared Prosperity Fund to replace European Union structural funding is long-overdue and significant unanswered questions remain. Business communities will now require more detail on how the scheme will operate and how the new fund will avoid damaging cliff edges in existing local economic development and business support schemes.”

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Andrew McRae, the Federation of Small Businesses’ Scotland policy chair, said: “For many Scottish firms wrestling with current Covid restrictions, the Chancellor’s most significant and welcome recent spending decision was the move to extend the furlough scheme.

“While action to improve infrastructure – like Scotland’s substandard mobile network – should deliver long-term gains, we didn’t see many new measures today to boost small businesses in immediate crisis.”

David Lonsdale, director of the Scottish Retail Consortium, said on business rates: “It is crucial that Scottish Ministers follow suit and freeze the headline poundage rate for the coming year, otherwise firms here in Scotland will be left paying more than their competitors and counterparts down south from April.”

He added: “The 100% business rates waiver during the current financial year has been vital for the retail industry, much of which has had to cease trading twice thus far during the pandemic.”

Malcolm Cannon, of IoD Scotland, said the increase in budgets for the Scottish Government and extension of City Deals will “no doubt benefit businesses in Scotland over the coming months” but described it as “light relief for those that have suffered greatly at the hands of Covid-19”. Azad Zangana, Schroders’ senior European economist and strategist, said the Chancellor’s “long overdue spending review makes for grim reading”.

Ian Stewart, chief economist at Deloitte, said that “the UK will have to live with historically high levels of public debt for many years to come”, adding “Government activism has hugely mitigated the human cost”.