THE impact of Rishi Sunak’s Spending Review will feel close to a return to austerity for some public services while six million lower-income households face a £1,000 cut to their benefits next year, financial experts have warned.

The Chancellor hit the airwaves to explain his “tough choices” made in the face of the pandemic’s devastating impact, which will mean the economy is set to shrink by its largest amount in 300 years, one million people are forecast to lose their jobs and borrowing will reach levels not seen in peacetime.

Mr Sunak sought to defend a pay freeze for an estimated 1.3 million public sector workers, saying there was a “disparity” between the public and private sectors going into the coronavirus crisis and “even when you take into account characteristics and pensions, there was at least a seven per cent pay premium for public sector”.

He went on: “That pay premium has certainly widened in the last six months, because what we’ve seen over the last six months is private sector wages have fallen by a percent and public sector wages have risen by around 4%.

“On top of that, people in the private sector are losing their jobs, their hours are being cut, they are being furloughed; none of that is happening in the public sector.

“So given the context, I couldn’t justify an across the board, universal pay increase for the public sector,” added the Chancellor.

But Anneliese Dodds, his Labour shadow, noting how Mr Sunak had had a chance in the Spending Review to put confidence back into the economy, said: “What did he choose to do instead? Well, he hit people’s pockets, he decided to, yes, focus that pay freeze on police and on teachers. Now that means they’re not going to be spending in our high streets.”

Intriguingly, the Chancellor refused to comment on future tax rises and did not rule out breaking manifesto commitments on not raising income tax, National Insurance Contributions and VAT after he reneged on a promise to maintain the overseas aid budget. “I’m not going to get drawn on future fiscal policy," was all he would say.

Paul Johnson, the Director of the highly respected Institute for Fiscal Studies, said Mr Sunak’s approach in response to the coronavirus crisis was tax-raising in nature.

The think-tank questioned why the UK Government was imposing a pay freeze on much of the public service as the financial benefits would be relatively low.

“This was a pretty austere spending review,” declared Mr Johnson. “It cut non-Covid-related public service spending by more than £10 billion next year and in subsequent years, relative to plans.

“There has been no top-up to NHS spending plans after next year.”

He added: “The key core spending review decision was to reduce public service spending, other than the £55bn allocated for Covid, relative to March plans.

“That core spending will still be four per cent higher next year than last but it will mean a tougher time for some public services than expected, especially after next year.

“This may not quite be a return to austerity but for some public services it may not feel much different,” argued the IFS chief.

Mr Johnson also warned the review could lead to an increase in Council Tax.

“This was actually a tax-raising Spending Review. The Chancellor has chosen to reduce support to local authorities and has given them the ability to raise Council Tax by 5% instead.

“If they do, and they’ll mostly probably need to, that will increase annual tax bills by an average of around £70 per household,” he claimed.

The head of the think-tank said the Chancellor had picked a big fight over “not very much money” by freezing pay for public sector employees who did not work in the NHS or who earned less than £24,000 a year.

He said: “The decision to freeze public sector pay for some will probably save only between £1 and £2bn next year. The Chancellor has perhaps picked a big fight over not very much money.

“And, as ever, in the public sector the decisions look driven by politics not by economics or the need to spend money either equitably or efficiently.

“It is graduate public sector workers in London and the South East who are least well paid relative to the private sector and local living costs yet they will be targeted by the freeze.

“Two teachers working half-time on £20,000 each will each get a £250 pay rise. A full-time teacher doing the same job for £40,000 will get nothing. This is no way either to spend public money or to treat public sector workers.”

Mr Johnson also said it was “disappointing” that there was no announcement on Universal Credit.

His comment on UC came as the Resolution Foundation said six million lower-income households face a £1,000 cut to their benefits next year as a result of the Spending Review.

The economic think-tank said Mr Sunak’s failure to extend a temporary £20 increase in UC beyond next March would hit families just as unemployment levels were expected to peak.

Torsten Bell, the foundation’s Chief Executive, warned the position was “untenable” and predicted the Chancellor would be forced to change his mind.

“Austerity is not going to feel like it’s over for lower-income families because the Chancellor yesterday chose to continue with plans to cut £1,000 from six million households’ benefits next April at a time when unemployment will be nearing its peak,” he said during the foundation’s online analysis of the Spending Review.

“That is in the end untenable and we are expecting the Chancellor to change his mind on that at some point, but he chose not to do so yesterday,” he added.

Responding to the Foundation’s analysis, Neil Gray for the SNP said it showed the Tory Government would leave millions of families "permanently worse off" unless the Chancellor reversed cuts to public sector pay and UC.

"The threat of a 15-year squeeze on incomes, comes after families have already suffered a decade of Tory austerity cuts and the damage of Brexit, which has taken billions out of the UK economy and pushed millions of people into poverty and hardship.

"By taking money out of people's pockets, the Chancellor is making the Tory unemployment crisis even worse. He must think again and boost people's incomes by reversing cuts to public sector pay, making the £20 uplift to Universal Credit permanent, extending it to legacy benefits, and delivering a fiscal stimulus of at least £98bn,” said the Nationalists’ work and pensions spokesman.

"Scotland shouldn't have to wait for Westminster to act. By withholding investment and blocking the devolution of powers, the Tory Government has hindered Scotland's ability to respond to this crisis and is threatening Scotland's recovery,” he added.