The public has fast become used to radical economic announcements from Rishi Sunak, starting with his budget in March, and yesterday was no different in terms of shock factor. Standing in the House of Commons, he laid out how the Government will further try to ease the economic damage from Coronavirus, in a £30 billion plan. “We need to be creative”, he said, and he did not disappoint.
In the immediate, Sunak wants to stop a wave of mass unemployment. To do this, the Government will incentivise firms to hang onto their employees – paying them a £1,000 bonus for every staff member kept on for three months after the furlough scheme ends (as long as they are paid a minimum of £520 on average each month between November and January).
Sunak’s employment measures are especially geared towards the young, who have already been badly affected by the Covid-19 fall out. The Government will spend £2 billion on a “kickstart” work placement scheme, to get up to 300,000 16 to 24-year-olds into employment, as well as paying firms a £2,000 apprenticeship bonus for each new apprenticeship they create over the next six months.
Sunak is also keen to breathe life into the hardest-hit sectors. To boost the hospitality industry, he has cut VAT on food, accommodation and attractions from 20 to five per cent from next Wednesday. The measure will remain in place for six months, will benefit an estimated 150,000 businesses and is said to cost about £4 billion.
Perhaps the most memorable announcement from his budget is the “Eat Out to Help Out” scheme. It means that anyone visiting a restaurant or pub between Monday and Wednesday in August can get up to 50 per cent off their bill, with a maximum of £10 per customer. Businesses can then claim the money back from the Government.
How much will it cost?
None of this is cheap, of course. The Institute of Fiscal Studies (IFS) suggests that borrowing will exceed £350 billion as a combined result of previously-announced policies and the recession. The FT estimates that the deficit will reach 18 per cent of national income, and will be almost twice the size of the deficit at its peak in the 2008-09 global financial crisis.
Aside from borrowing, many details remain unknown as to how this will be paid back, and where Sunak’s plans are ultimately leading us. John O’Connell, Chief Executive of the TaxPayers’ Alliance, told ConservativeHome today: “Tax receipts have absolutely plummeted since the arrival of coronavirus. Total HMRC receipts in April and May 2020 were £45.2 billion lower than the previous year.
“At the same time, the OBR estimates that the total cost of the job retention scheme could exceed £50 billion by the time it ends in October. To pay for these massive shortfalls the Debt Management Office revealed that Britain is set to sell a record £275 billion of government debt in just five months between April and August. Incredibly, this is more than two and a half times the gilt sales for the previous financial year.”
He added: “As usual there have been calls for taxes to rise to balance the books but this isn’t sensible or feasible when the tax burden is already at a 50-year high. The last thing we need is to inflict austerity on taxpayers. It would be far better to eradicate wasteful spending and grow the economy by slashing taxes and cutting red tape.”
As ConservativeHome reported yesterday, centre-right think tanks have generally been concerned about the tax burden. Following yesterday’s announcement, Sunak was quizzed on LBC about whether there would be tax rises, which he did not rule out.
What do economic measures look like elsewhere?
While there are concerns about how enormous Britain’s payments will be, the UK’s stimulus actually puts the country “in the middle of the pack” of spending when compared to others across the world. Data from the Resolution Foundation measuring countries on the size of their fiscal response to coronavirus as a proportion of GDP (as of June 2020) puts the UK behind the US, Germany, Japan and Australia, but above Canada, France, the Netherlands and Italy.
Other data from Bruegel Datasets is around ‘discretionary fiscal measures adopted in response to coronavirus’ by June 15 2020, as a percentage of 2019 GDP, with UK standing at 4.8 per cent; the US at 9.1 per cent and Hungary at 0.4 per cent, alongside other countries.
So while Sunak’s measures look drastic, it’s worth remembering that the UK’s economic snapshot cannot be taken as a standalone, as others are taking serious action too. The eventual cost for the UK, and what happens next in the pandemic, is anyone’s guess.