THE full cost of the coronavirus crisis has been laid bare with the UK economy set to shrink by its largest amount in 300 years, one million people forecast to lose their jobs and borrowing to reach levels not seen in peacetime.

Rishi Sunak, the Chancellor, told MPs bluntly: “Our health emergency is not yet over; our economic emergency has only just begun.”

The Office for Budget Responsibility[OBR] said it did not expect the economy to return to its pre-crisis levels until the end of 2022.

The grim numbers include: the economy shrinking in 2020/21 by 11.3 per cent, plunging Britain into its worst recession for more than three centuries; the jobless rate expected to rise next year from 1.6m to 2.6m - from 4.8% to 7.5% - and borrowing reaching an eyewatering £394 billion this year, equivalent to 19% of GDP.

Mr Sunak warned the long-term scarring from the “economic emergency” would continue into the middle of the decade with the economy likely to be 3% smaller in 2025 than predicted in March.

The dire state of the public finances means an estimated 1.3m public sector workers will see their pay frozen while the overseas aid budget is being slashed by billions of pounds.

The OBR forecasts show a recovery is expected over the coming years with growth of 5.5% next year as coronavirus restrictions are eased, then 6.6% in 2022, falling to 1.8% in 2025.

While Government borrowing will hit £394bn this year, it is expected to fall back in future years yet the national debt is still forecast to be at 97.5% of GDP by 2025-26.

“This situation is clearly unsustainable over the medium term,” admitted Mr Sunak, who is expected to introduce tax hikes in the next 12 months or so.

Richard Hughes, OBR Chairman, said the Chancellor’s interventions since July totalling £86bn this year and £40bn next year had saved the economy from being “materially weaker” and the extension of the furlough scheme to next March had probably saved some 300,000 jobs.

But the financial watchdog suggested the Government would need to find up to £27bn worth of spending cuts or tax rises by 2024 to put the public finances back on a sustainable footing.

Intriguingly, the Chancellor failed to mention Brexit. The OBR pointed out that failure to get a trade deal with the EU would wipe an extra 2% off the UK’s economic output.

The FTSE 100 share index slid into the red following the Spending Review statement, closing 41 points lower at 6,391.

Anneliese Dodds for Labour accused the Conservative Government of a catalogue of irresponsible actions, accusing it of having “wasted and mismanaged public finances on an industrial scale” during the pandemic.

Kate Forbes, the Scottish Government’s Finance Secretary, insisted the Spending Review did not deliver the levels of investment required for economic recovery.

“Freezing public sector pay for so many at the frontline, scrapping the proposed increase in the National Minimum Wage to £9.21 and failing to extend the £20 uplift to Universal Credit and Working Tax Credit beyond April 2021 mean millions of people will have less money to spend to help drive our economic recovery. Those who are already hardest hit by the financial impacts of Covid-19 will be affected. For some, it will mean a continuing struggle to feed their family.”

She said despite the Chancellor announcing a 27% increase in UK capital expenditure, the Scottish Government’s capital budget would be cut by some 5%.

“Scotland needs an infrastructure-led economic recovery to deliver new jobs and speed up the transition to net zero. That won’t be possible with a budget cut,” insisted Ms Forbes.

Paul Johnson for the highly respected Institute for Fiscal Studies, questioned some of the spending assumptions, saying: “It seems more likely than not that spending will end up significantly higher than set out today and so borrowing in 2024/25 will be considerably more than the £100bn forecast by the OBR.

“Either that or we are in for a pretty austere few years once again or for some significant tax rises.”

In his Commons statement, the Chancellor insisted £100bn of public investment would help “unleash the potential of the Union”.

Despite the dire national finances, total UK departmental spending will rise by almost £15bn to £540bn in 2021/22. The Scottish Government’s funding will increase by £2.4bn next year, double the amount earmarked in 2019.

Mr Sunak also announced there would be faster funds for City Deals north of the border, declaring: “The Spending Review will help people in every corner of Scotland.”

Alister Jack, the Scottish Secretary, pointed to the £220m UK Shared Prosperity Fund, which would benefit Scotland with the UK Government “working in partnership with local authorities and communities” ie bypassing Holyrood. This, he claimed, was “real devolution”.

To help cope with rising unemployment, the Chancellor set out a nearly £3bn Restart programme to help get people back into work.

For those in work, the national living wage will increase by 2.2% to £8.91 an hour and the minimum wage will also rise.

Mr Sunak told MPs some £280bn was being spent on the coronavirus response this year. Next year, £55bn was earmarked for public services dealing with the crisis, including an initial £18bn for testing, personal protective equipment and vaccines.

The Chancellor also sought to deliver on the Government’s “levelling up” agenda with a £4bn fund for local improvement projects and a new national infrastructure bank headquartered in the North of England.

As expected, Mr Sunak announced a cut to overseas aid of almost £4bn to £10m, from 0.7% to 0.5% of GDP for 2021, thus breaking a manifesto commitment.

But he argued: “Sticking rigidly to spending 0.7% of our national income on overseas aid is difficult to justify to the British people, especially when we’re seeing the highest peacetime levels of borrowing on record.”

The Chancellor told MPs “tough choices” had to be made at a time of unprecedented crisis and promised aid spending would return to 0.7% “when the fiscal situation allows”.

The move prompted a major backlash.

Baroness Sugg, the International Development Minister, resigned in protest, branding the move “fundamentally wrong,” while David Cameron, the former PM, described it as “regrettable” and a “very sad moment”.

Nicola Sturgeon tweeted her dismay, saying: “The cut to the overseas aid budget is a political gesture to the right wing of the Tory party and the price of it will be paid by some of the poorest people in the world. Deplorable indeed.”

Justin Welby, the Archbishop of Canterbury, also took to social media, branding the aid cut “shameful and wrong”.

In the Commons chamber a string of Tory MPs spoke out against the move.

Andrew Mitchell, the former International Development Secretary, asked the Chancellor: “Is he aware his proposed breaking of the 0.7% promise and the 30% further reduction in cash will be the cause of 100,000 preventable deaths, mainly among children?

“This is a choice I for one am not prepared to make and none of us in this House will be able to look our children in the eye and claim we did not know what we were voting for.”

However, fellow Conservative Philip Davies supported the aid cut and said it would be welcomed by people in the “real world”.

The Yorkshire MP noted: “I suspect that the vast majority of the British public won’t be asking why has he cut so much, they will probably be asking why are we still spending so much?”

Mr Sunak also enraged Labour and the SNP by confirming a pay freeze for millions of public sector workers, NHS frontline staff exempted.

He explained he could “not justify a significant, across-the-board” pay increase for all public sector workers given the difficulties faced in the private sector.

Over a million nurses, doctors and others working in the NHS south of the border will get a rise but increases for the rest of the public sector will be “paused” except for 2.1m workers earning below the median wage of £24,000, who will receive at least £250 extra.

Ms Dodds said the pay freeze took a “sledgehammer to consumer confidence”.

Alison Thewliss for the SNP said it felt like the Government was “punishing people for working in the public sector”.

The Glasgow MP added: “The absolute heroes who saw us through this pandemic have more than earned their pay. A public sector pay freeze takes £4bn out of the economy, squeezes living standards and starves the economy of investment at the very worst possible time.”