Walking into Number 11 in February following the resignation of Sajid Javid, new Chancellor Rishi Sunak was already thrown in headfirst knowing he had to deliver his first Budget in just a few short weeks.
The March Budget was significant in itself as he dispensed £30bn of additional spending, including £12bn alone to mitigate the economic impact of the coronavirus pandemic.
Fast forward a mere 3 months and Sunak has announced numerous economic support packages – many of which were almost mini fiscal events in themselves – and the Government’s Covid bill has reached over £90bn and will continue to rise as the support schemes are extended. Underpinning the response was £330bn in loan guarantees as the outbreak led to economic shutdown – this was genuinely unprecedented in its reach and scale.
Despite Johnson’s declarations in late March that they will “act like any wartime government and do anything it takes to protect the economy”, Number 10 seems to have reached the conclusion that it now has no choice but to push ahead with a cautious lifting of the lockdown restrictions as it attempts to halt the rapid economic downturn.
As more retail stores (not forgetting zoos) begin to open their doors this week, with pub gardens and hairdressers eager to follow suit, the Prime Minister has announced he will unveil a Coronavirus recovery package including an economic plan from the Chancellor in the first week of July.
Number 10 and the Treasury have made efforts to downplay expectations of an emergency Budget or major fiscal event, however as in the lead up to fiscal events in more normal times, press speculation has taken off regardless.
The plan is much more likely to focus on economic stimulus to get the economy moving again rather than big structural tax reforms, in efforts to inspire consumer spending. However, the need to restore stability given the cost of the Government’s coronavirus rescue schemes will very much be on Sunak’s mind as he looks ahead to the autumn Budget.
So, what might this economic stimulus package look like?
With over 11.5m people on furlough or receiving the self-employed subsidy, the Government is determined to fend off a spike in unemployment, particularly among 18-24 year olds, as the schemes begin to wind down in July. Johnson has already announced that every young person will be offered an apprenticeship and a central focus of the economic package will likely be measures to get employees back to work and funds to upskill and retrain those out of work.
Bringing forward a National Infrastructure Strategy was a core agenda item for the Government post-election. However, its publication was shelved in the March Budget as the pandemic took precedent. We may well see a re-packaged version of this through investments into high-speed broadband, major road upgrades, and to deliver the rapid EV charging network promised in the Conservative election manifesto.
With the UK set to host the rescheduled UN Climate Change Conference COP 26 in November 2021, the Government is under pressure to prioritise a so-called ‘green recovery’ and ensure the crisis will not hinder the advancement to net zero in 2050. We may well see investment in green energy projects, a focus on generating green jobs, and potentially ‘green strings’ attached to stimulus packages.
Investment in the NHS will also be an important consideration for the Treasury, with public support for our health and care services at an all-time high as workers have been on the frontline throughout the crisis. This could come in the form of funds to speed up construction of the 40 new hospitals by 2030 promised in their manifesto, or measures to boost the NHS before the winter, such as fast-tracked recruitment campaigns for doctors and nurses.
While the fiscal plans may be relatively light on taxation, there has both been speculation that there could be cuts to VAT, National Insurance or Income Tax to drive consumer spending, alongside speculation of tax rises to recoup the rising coronavirus debt. It’s worth noting that the Conservatives’ election manifesto committed to no increases to VAT, NI, or Income Tax, and Treasury sources have played down the prospect of cuts, suggesting they are more likely to be considered for the autumn Budget.
At the beginning of 2020, having secured an 80-seat majority in the General Election, the Prime Minister’s plan was to “unleash spending” to “level-up the economy”, particularly to show his commitment to new Tory seats in former labour heartlands. While economic and social conditions in the UK have dramatically altered over the past three months, the Government is under more pressure than ever to invest in all parts of the country to stimulate the economic recovery, particularly in the former red-wall constituencies. As we head into the summer and the lockdown unfolds, Johnson and Sunak will have their sights firmly set on getting things going again and not letting economy flounder.