On 11 March 2020, the UK Budget, outlining the British government’s spending plans, was presented in the House of Commons by the newly- appointed Chancellor of the Exchequer, Rishi Sunak. In a show of largesse that lasted 65 minutes, the so-called “Maharaja of the Dales”, who had been propelled into his post less than a month before, finally abandoned financial austerity as he embarked on an ambitious programme of public borrowing and spending, thereby increasing the Budget deficit to 2.4 per cent of GDP in 2020/21. In a hard-hitting speech, playing to a mostly supportive audience, he made repeated references to getting things “done”, as he liberally dished out public money in support of many ambitious initiatives, promising to make the UK a much better country in the process.
This Budget is not your typical Conservative economic policy document, having more to do with the ideas of John Maynard Keynes than with the more recent ideologies of neo-liberalism that currently prevail in the Western world. Traditionally, the Labour Party has been described as the party of exuberant spending and fiscal intervention, while the Conservative Party has been wedded to the principles of restrained public spending and laissez faire. This Budget abandons all such prevailing stereotypes, reflecting the dramatic shifts in the political ideologies and allegiances of the day.
Preceded by an emergency cut in interest rates from 0.75 per cent to 0.25 per cent, announced by the Bank of England earlier in the day, the Budget is focused on countering the inevitable economic threats of the ongoing coronavirus pandemic, while at the same time delivering on the lavish election manifesto promises made by the Conservative Party in November 2019.
Sunak has acknowledged the likelihood of a significant, but temporary, impact from the coronavirus outbreak, with effects on both the supply and demand sides of the British economy (people and businesses), causing reduced productivity as well as a fall in consumer spending. To mitigate a contracting economy, he has outlined a £12-billion package of measures, including a £5 -billion emergency response fund for the NHS and other public services, a safety net for “vulnerable people” and protection of jobs through enhanced support for small- and medium-sized businesses (those employing up to 250 people). Support for those deemed “vulnerable” comes in the form of statutory sick paid for two weeks of quarantine, self-imposed or otherwise, from day one, for workers earning £118 per week or more. Employment Support Allowance has been made available to those who are self-employed or part of the “gig economy”. Small- and medium-sized businesses are being offered a combination of business rate relief, deferred tax payments, and “business interruption loans” to tide them through cash flow problems during a period of uncertainty.
In keeping with manifesto promises, public services and infrastructure are the key beneficiaries of this spending spree. Repeated references to “economic geography” also reflect an apparent desire to address persisting North-South economic inequality. The NHS has been promised £6 billion in extra funding over five years, with additional back-up from “whatever extra resources” may be needed. Infrastructure spending, to the tune of £22 billion, is being targeted on both physical infrastructure in the form of transport (roads, railways), construction (housing) and broadband (4G coverage)-all areas starved of investment- as well as on intellectual assets (research and development).
Environmental issues (a plastic packaging tax; funding for flood protection; an electric vehicle charging network; and removal of red diesel subsidy, among several others) have been duly addressed, although a freeze on fuel duty cannot be counted as an eco-friendly initiative. A promise to tackle tax avoidance has been widely welcomed. At the same time, any mention of increased spending on social care, or on initiatives in preparation for Brexit, is either lacking or deliberately underplayed.
This being a “People’s Budget”, and recognising the popularity of booze and the motor car, alcohol and fuel (petrol and diesel) duty have both been frozen. The so-called high-profile “tampon tax”-VAT on women’s sanitary products-has been scrapped. Increased public spending frequently means increased taxation. On this occasion, however, income tax, corporation tax and VAT are unchanged, while the tax threshold on National Insurance contributions has risen from £8,632 to £9,500. Pension tax rules for high earners have been altered, aimed in particular at encouraging consultants to undertake additional duties in support of the struggling NHS.
Sunak has stressed that, despite what may appear to be a lack of financial prudence and rectitude, the Budget fully accords with the fiscal rules on borrowing and spending, as laid out in the Conservative manifesto. The Conservative Party thus retains its position as the party of “financial responsibility” for the time being.
The Chancellor has prescribed a combination of strong medications, funded by an unexpectedly large “magic money tree”. It is to be fervently hoped, however, that any short-term therapeutic effects of his treatments will outweigh any possible toxic side-effects on the British economy in the longer term.
Ashis Banerjee