A Budget for recovery

 

A Budget for recovery

In 1981, “a Tory chancellor presented a Budget in difficult circumstances”, The UK was in the grip of its deepest recession since WW2, and the economic consensus was clear: the chancellor, Geoffrey Howe, would be mad to raise taxes. That, of course, is exactly what he did – prompting a now “infamous” reaction from 364 economists who wrote a letter warning his strategy would make things worse. They were roundly mocked when that spring “marked the start of the long 1980s recovery”. Forty years on, Rishi Sunak faces a similar dilemma in his speech next Wednesday – “except that the magnitudes are much bigger”. The budget deficit for the 2020-21 fiscal year will be close to a whopping “20% of GDP”. There has been talk of unveiling a “stealth-like” income tax rise by freezing allowances, or imposing windfall levies on pandemic winners. Green taxes have been mooted, as have rises in corporation and capital gains tax. Sunak should resist. With optimism still so “fragile”, he “shouldn’t even think of doing a Geoffrey Howe”.

It’s hard to find anyone who disagrees, “The country cannot go on borrowing for ever” – not least because rising oil and commodity prices, and unprecedented monetary creation, are forcing debt charges higher – “but now is not the time to slam on the brakes”. Indeed not, An essential, confidence-building aspect of this Budget must be a message “that better days lie ahead”. That does not mean, however, that the Chancellor should shirk his responsibility “to be honest” with the public. The immediate decisions on policies such as furlough and business rates relief will be tied to the reopening roadmap. Trickier by far is addressing the long-term challenges, which stretch far beyond paying for Covid. “The longer-term costs of pensions, health and social care spending that will fall over the next half-century will require some tougher choices.”

As we ease our way out of lockdown, directing support to sectors that need it most is crucial,“We don’t need any more whizz-bang ideas doodled on the back of an envelope, such as Eat Out To Help Out.” What’s needed is “lots of re-skilling to replace all the jobs that will be lost as furloughs end”; help for hospitality and services firms; support for commercial property; and, most of all, “a plan for turbo-charging consumer spending”. Beyond that, there must be some plain-speaking about where revenue will come from in future years, Raising taxes in the future will be made easier if the Chancellor starts to prepare us “for the inevitable”.

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