Wednesday’s budget will only be Rishi Sunak’s second, but it will be something like his fifteenth big fiscal announcement, so active has he been over the past year in response to the pandemic. In fiscal terms, it is likely to be a smaller event than some of those brief appearances at the dispatch box during which has thrown money around like confetti in his efforts to support public services, jobs, incomes and businesses.
Expect more confetti. With restrictions extending into June, his first priority is going to be to extend many of the support schemes. It looks like there are as many as six million people furloughed at the moment, an extraordinary one quarter of the private sector workforce. The coronavirus job support scheme is due to finish at the end of April. I expect that to be extended for at least a couple of months and then perhaps phased out over a couple more. The same goes for the self-employment income support scheme.
It’s important that these remain in place while restrictions continue. We don’t want unnecessary hardship or the loss of viable businesses in what we hope will be the last few months of the pandemic. It’s also important that they don’t go on for too long. If people are supported in jobs that are effectively defunct, that will slow down the adjustment and recovery to come.
The difficulty for the chancellor is that while he needs to get rid of the blanket protection provided by the job support scheme, he may need to keep supporting some sectors. It may be that airlines, nightclubs or other specific parts of the economy will need help beyond June. He has set his face against targeting the job support scheme at specific sectors up to now and may decide to wait longer before adjusting that position, but it could become unavoidable.
As for the self-employed, support for them presumably will be phased out at a similar rate and over a similar period as that for employees. It looks as if hopes of better targeting this scheme, which is outrageously generous to many while completely — and in some cases arbitrarily — excluding many others, will be dashed. The way the government has treated the self-employed can go down as one of the bigger failures in the design of Covid support packages.
Of a different nature is the decision over what to do about the £20-a-week increase in universal credit, introduced a year ago and due to run out at the end of March. Of course, this could be made permanent, at a cost of over £6 billion a year. Given the miserly value of the credit, especially for the childless unemployed, the case for extending it is strong. Allowing it to expire will mean some of the poorest seeing their income fall by a fifth between March and April. It’s not hard, though, to understand Treasury reluctance to make permanent something this expensive that was explicitly intended to be temporary.
That decision over what to do about universal credit encapsulates two of the big strategic decisions that Sunak will need to grapple with.
The first is over how to deal with the distributional consequences of the pandemic. The evidence is overwhelming. It is the poor, the young and the less highly educated who have paid the economic price of the virus and lockdowns. For example, there has been almost no fall in the number of graduates in paid work over the past year, while there have been big declines in the number of non-graduates in work. Those aged under 25 have been three times as likely as those over 35 to have stopped work. The long-term effects of school closures will open social divides even further. A clear priority for the budget must be to start to address these inequalities and to lay the groundwork for a longer-term strategy.
The second big decision will be over the scale of public spending in future. The chancellor’s spending review last autumn, rather implausibly in my view, suggested that public spending from 2022 onwards would now be less than had been pencilled in pre-pandemic. Given likely lasting pressure on health, education, social care and local government, to name but the most obvious, the chances must be that spending will head in the other direction. Sunak will be nervous that £6 billion on universal credit would just be the start of a long list of spending increases.
And that brings us to the deficit, the debt and what to do about it. Once again, there have been a host of stories about possible tax rises to pay for the huge scale of borrowing we have seen this year. In fact, we don’t need to start to pay down the debt accumulated this year; that burden can be shared reasonably across many generations. But if spending on welfare and on other public services does rise, and if the economy turns out to be smaller in the long run than we had expected, then eventually taxes will have to rise, possibly by a lot.
I would be mighty surprised, though, if there are big tax rises this week. The chancellor should be focusing on the recovery for now. That even could mean some short-term tax cuts and additional short-term spending increases to support the economy. Yet he should tell us what his longer-term plans are. The manifesto commitment to reduce debt over this parliament is clearly out the window. Sunak’s conference promise that he will always balance the books was, to be generous, no more than a rhetorical flourish. What he is actually aiming for and by when we do not know. This week’s budget is his chance to give us a real sense of who he is and where he wants to go.
This article was first published in The Times and appears here with kind permission.
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