John Glen is Economic Secretary to the Treasury and City Minister, and is MP for Salisbury.
Twelve months ago, Paul Goodman asked me to provide some reflections on the 2020 Budget for ConservativeHome readers. The Chancellor had been in position for less than a month and the first lockdown was still a couple of weeks away. We had just announced a major boost to infrastructure spending, and the world of furlough and Bounce Back Loans was not yet fully on our horizon.
While we were aware of severe difficulties that lay ahead, the scale of the economic impact was impossible for anyone to forecast accurately. A year later, we are all now well versed in the steps that the Government was required to take to support the economy and keep people in their jobs, in the middle of the worst economic turbulence we have faced since the Second World War.
The complexity of delivering a Budget against the backdrop of the multi-dimensional challenges of a once-in-a-century pandemic should not be underestimated. A year of unprecedented intervention into the economy from the Government has had its impact on the public finances.
The Chancellor was right to level with people about the size of the problem and the importance of tackling it. Indefinite spending at current levels would leave us struggling to retain the confidence of the markets.
Yet, at the same time, we are not out of the woods with the pandemic. Despite the extraordinary success of our vaccination programme, we are still not at the stage where we can fully reopen the economy and return to normal.
Budgets are always balancing acts, and this year, perhaps even more so than normal. If we withdraw government support from struggling sectors of the economy too swiftly, we risk undermining the recovery later this year. Yet on the other side of the ledger, if we continue indefinitely with the current level of largesse from the state, we entrench dependence, creating an anaemic private sector and high levels of debt which also throttle economic growth. We must also remember that the more sanguine assessments on the impact of further borrowing are heavily reliant on interest rates and inflation remaining at historic lows – something that can never be guaranteed.
The extension of support for the economy in the Budget is very welcome. The furlough scheme has been extended until the end of September 2021, with businesses gradually contributing to it from July. Support for the self-employed has also expanded. A fourth grant will cover February-April, and a fifth grant will cover May to September. Crucially, self-employed people who filed a 2019-20 tax return by Tuesday this week will be eligible. This makes a further 600,000 people eligible for the scheme, who had missed out previously due to not trading and submitting a tax return for 2018-19.
As well as supporting those in work, we have made sure that the most vulnerable in society do not miss out on government support either. We are continuing the £20 uplift to Universal Credit for a further six months, ending in September instead of March. There is also support for those struggling to get on the housing ladder. In addition to extending the Stamp Duty cut by three months followed by a reduced rate for a further three, we are providing a mortgage guarantee. Home buyers who can only provide a five per cent deposit will benefit from the government giving guarantees to lenders to offer 95 per cent mortgages.
As the Economic Secretary to the Treasury and City Minister, I am convinced that our world-leading financial services sector has to be at the forefront of our economic recovery. I was delighted to hear the Chancellor commend Lord Hill’s landmark listings review in his Budget speech. The Financial Conduct Authority will soon begin consulting on his proposals to encourage more companies to list in London.
We are also taking steps to boost investment in tech companies through the launch of the Future Fund: Breakthrough, to support the scale up of our most innovative and R&D-intensive firms. With a total commitment of £375 million, the British Business Bank will take equity in funding rounds of over £20 million to give greater access to capital for key companies in the future economy
Alongside these measures to support the economy, the Chancellor used the Budget to plot a course to return greater discipline to the public purse in the medium-term once we emerge the other side of the pandemic. Borrowing this year will hit £355 billion (16.9 per cent of GDP) and the OBR forecasts it will still be £234 billion (10.3 per cent) in 2021-22 – both significantly larger amounts than the deficit we inherited in 2010.
Increasing corporation tax to 25 per cent – still the lowest level in the G7 – and freezing income tax thresholds shows that we are prepared to make the tough calls to help put the economy on a firmer footing by the middle of the decade. With the steps we are taking, borrowing is forecast to fall back to £74 billion (only 2.8 per cent of GDP) by 2025-26.
The Budget strikes exactly the balance we need between supporting the economy in the latter stages of a major public health emergency and signalling a return to fiscal responsibility by the middle of the decade. As the Chancellor made very clear yesterday, the reason why we have been able to take the extraordinary steps we have done over the past year is because we made the difficult but responsible decisions to improve the public finances after the 2008 financial crisis. We do not know what shape the next crisis will take and when it will arrive, but once we are out of the pandemic, we must start again on that journey to rebuild our economy so we have the firepower at our disposal to intervene once again when the moment requires it.