Sajid Javid didn’t have a chance to deliver a Budget. Rishi Sunak has been in place for less six months after succeeding him, but has already made at least three big financial statements. Tomorrow he will deliver a fourth. What should he say?
The number of those previous announcements is a warning. No Chancellor can know the future. But the Treasury’s crystal ball is misted over all the way round. Andy Haldane’s claim that the current downturn looks V-shaped may be both right but irrelevant – if recovery is upturned by what lies ahead.
We don’t know what the Coronavirus will do next winter, how many local areas will follow Leicester into locking down, whether the Government’s test and trace plan will work and, if it doesn’t, whether a national shutdown will be reannounced – and, if so, how many people would observe it.
Until or unless there is a vaccine, or effective treatments can be discovered and marketed, or mass immunity is achieved, Covid-19 will have the capacity to collapse countrys’ healthcare systems, unless the virus simply peters out of its own accord.
So whatever Sunak announces tomorrow could be even more provisional than most schemes of most Chancellors. And even if one assumes the best, he has a big decision of principle to take. His big bazooka has fired out well over £300 billion to date, a sum greater than a third of a whole year’s worth of public spending.
This was emergency surgery to deal with a economic heart attack, of a type unknown in this country’s history, and unlike the effects of the two world wars with which it is sometimes compared. There was no voluntary social distancing or compulsory state lockdown after either 1914 or 1939.
Crisis medical intervention when the patient is flat on his back is one thing; when he is up and walking, it is quite another, however tottery he may be. The art of the doctor is then to withdraw as much assistance as possible, with the aim of getting back to normality. Which takes us to what the “new normal” will look like at best.
On this site tomorrow, Ryan Bourne will write his fortnightly economic column, and one of his recent ones set out the concept of the Inefficient Economy. In it, he painted a Coronavirus-tainted picture of “middle-seats left free on flights, wide spaces between tables, and extensive cleaning of hairstyling tools”.
“Cleaners will disrupt workplaces more often to keep workspaces sanitised,” he continued. “Employees still working from home often, or in office shifts, or unable to travel internationally, will entrench communication inefficiencies. Then there’s staffing difficulties with workers self-isolating when they get symptoms or disruptions to child-care.”
“If that wasn’t enough, the economy will also face a labour market shock. Jobs will be permanently lost, while others will be created.” So right at the start of drawing up his plans, the Chancellor faces a question of principle. How much should he seek to support those for whom the new normal isn’t the old one – if at all?
There are different categories of losers. Let’s consider a few of them. First and most obviously, there are those enterprises whose practical workings aren’t compatible with social distancing at all – theatres; marathons; big stadium events; rallies; concerts.
Sunak has already answered this element of the question, committing to £1.5 billion for theatres, galleries and museums. Our worry about it is practical rather than political: just how big a burden of borrowing will the markets be willing to bear, if he follows suit elsewhere?
The dash for growth that Boris Johnson and the Chancellor plans to make, fuelled by tax cuts and spending increases, is workable if the markets are willing to continue to lend money to the Government at rock bottom rates. But that doesn’t guarantee that the growth will come. Nor that the borrowing will be affordable.
Nonetheless, Sunak will clearly now continue as he means to go on. That means, second, helping the human victims of social distancing and the shutdown, in the front line of which are those who have lost their jobs or are about to, as the furlough scheme is withdrawn.
In particular, the Chancellor will be thinking of the younger people entering the jobs market for the first time, and those people who have become unemployed very recently. Hence his plan for 30,000 new traineeships and, we presume, adapting JobCentre Plus and careers services to the new realities.
Dealing with the consequences of mass unemployment, which is likely to return for the first time in a quarter-century, however briefly, must be at the heart of Sunak’s package. We will return to it later, after dealing briefly with two other sorts of categories of losers.
Into the third, we will cram every form of business and enterprise that must grapple with the effects of the virus – from railways to high streets to the universities to airports. Our hope is that, in not putting the taxpayer on the hook for everything, the Chancellor will be discerning about the somethings.
For example, the Government has a chance never to let a crisis go to waste with regard to higher education. If some universities are no longer financially viable, Ministers will have an opportunity to rebalance post-16 education towards the vocational rather than the academic, along the lines set out in the Augar Review.
Fourth, there is a social justice dimension to Sunak’s plans, or should be. Cutting taxes is always a desirable thing. But there is no point in reducing stamp duty simply in order to revive Britain’s housing market dance – one in which too few younger people are able to participate.
So we need planning reform in order to open up more room on the ballroom floor. Then consider the other side of the housing market – those who have no home at all. What will happen to rough sleepers once the hotels that are accomodating them open up again?
Tomorrow, Sunak will set new fiscal rules – which he must do, since the old ones are out of date, and he must have new ones to accomodate cutting taxes and borrowing more. We hope he will concentrate the former on business and workers, and will be looking for a national insurance reduction, a longer business rates holiday, and VAT cuts.
Watch the Chancellor’s statement carefully for coat-trailing on higher property taxes, in the medium-term, and pensions relief changes. These are surely coming. But there we go – assuming that Sunak’s plans will have a shelf-life longer than a few months, which as we said right at the start may not be the case.