(Bloomberg) -- Chancellor of the Exchequer Rishi Sunak warned the U.K. will suffer its deepest recession in more than 300 years as a result of the coronavirus pandemic, with 2.6 million unemployed, as he set out government spending plans.Sunak announced billions of pounds for new infrastructure projects to boost jobs, and support for low-paid workers, but he cut spending on policies he said were hard to “justify” -- such as public sector pay rises and overseas aid.“Our health emergency is not yet over and our economic emergency has only just begun,” Sunak told Parliament. “So our immediate priority is to protect people’s lives and livelihoods.”The chancellor’s statement to Parliament on Wednesday began the British state’s painful reckoning with the financial consequences of the pandemic, with some tough decisions on how to address a ballooning budget deficit.With renewed lockdowns threatening further economic damage, the chancellor focused on support for jobs and the unemployed, plowing tens of billions of pounds into infrastructure spending, and ensuring the health care system can cope with a resurgent wave of infections.Sunak’s choices will set the tone for the ruling Conservative Party’s approach to the fiscal legacy of the coronavirus.The most noteworthy announcement in advance was the biggest uptick in defense spending in three decades: a four-year, 24 billion-pound investment in the country’s armed forces that pleased traditional Conservatives. The chancellor also confirmed a cut in the U.K.’s foreign aid budget to 0.5% of national income, breaking a promise to spend 0.7%.The drop in overseas development spending is likely to dismay other Tories including former Prime Minister David Cameron, who warned it will hamper renewed efforts to display Britain’s global role just as Brexit takes effect.Sunak said the 0.7% aid commitment was “difficult to justify” to the British people. “I have listened with great respect to those who have argued passionately to retain this target,” he said. “But at a time of unprecedented crisis, government must make tough choices.”Curbs to public sector pay also provoked an immediate backlash.“Earlier this year the chancellor stood on his doorstep and clapped for key workers, today his government institutes a pay freeze for many of them,” Labour’s shadow chancellor, Anneliese Dodds, told Sunak. “The beginning of his speech was that our economic emergency was only just begun. Try telling that to people who’ve been out of work since March.”U.K. Boosts Debt Sale Plan to $648 Billion to Bolster EconomyA new infrastructure strategy is expected to detail planned projects to deliver on 100 billion pounds of projects pledged over the course of the five-year Parliament that started last December. Sunak also unveiled a new financial institution to help attract private money into such programs.The chancellor has found himself spending in a way that no Conservative chancellor would easily countenance. As of July, costs totaling 200 billion pounds had been racked up or earmarked to tackle the virus and support jobs and businesses through the crisis.More borrowing will be needed. The government plans to issue a record 485.5 billion pounds of bonds this fiscal year.The Office for Budget Responsibility forecast that the already dire economic situation would be made worse if the Brexit negotiations end without a deal. In that scenario, unemployment would peak at 8.3%, while the economy wouldn’t reclaim its pre-virus size until well into 2023. The long-term GDP scarring of virus would be 5% rather than 3%, according to the OBR’s latest forecasts, published Wednesday.(Updates with announcement details starting in second paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.