According to the Treasury, it was a budget which "meets the moment". Was it to be, a budget for recovery or a budget to balance the books? On analysis, it was a bit of both. Support for the economy in the short term, with a move to balance the books in the medium term.
The Rishi Sunak "Straddle" was a crowd pleaser. The Tory lead over Labour jumped to 13 points. The Chancellor's own ratings remain extremely high. 55% think he is doing a great job.
Not surprising really. The budget was a £50 billion giveaway. Extension of the furlough scheme to September, more support for business, extending the Universal Credit Bonus, an uplift in the living wage, more support for the housing market, VAT reductions to continue, a £700 million bonus for Arts, Entertainment, Culture and Sport. It was a huge shopping list of goodies, to guarantee the recovery.
The Chancellor offered a three point plan to protect jobs and support businesses, strengthen public finances and to generate an investment led recovery.
The Office For Budget Responsibility bought into the plan. The economy is expected to recover, to pre covid levels, by the middle of next year. Growth is expected to be 4% this year rising to over 7% next. Unemployment will peak at 6.5% in the final quarter, before falling to current levels by 2023.
Government debt will increase to an eye watering £2.8 trillion pounds by 2025. Borrowing will be £345 billion this year, falling to £234 billion next. Thereafter, the level of borrowing will drop below £100 billion in each year of the forecast period, thanks to an increase in income tax and corporation tax revenues.
The Prime Minister's "Route to Recovery" is well marked. The numbers furloughed should begin to fall quite rapidly. In the US, 379,000 jobs were added in February. 355,000 were in accommodation, food and leisure. The impact of the route to recovery on our output model suggests growth of 6.5% may be possible this year.
The Chancellor wanted to be honest with the public about the need to get public finances back on track and give people, the certainty they need, for the future. "Honesty" is the best policy. "Honesty" had scored well in focus group polling.
The Institute For Fiscal Studies is more skeptical. "Santa Sunak, purveyor of billions today, will look more like Scrooge Sunak in the years ahead" said Paul Johnson, Director of the IFS. In 1990 just over 5% of taxpayers paid the higher rate of tax. Within four years, the proportion will rise to over 15%. The overall tax burden will rise to 35% of GDP. The highest level since the 1960's.
For the moment, the emphasis is on the substantial support for jobs and businesses in the short term. The shock to the economy of a 10% loss of output could have led to a surge in unemployment to over 10% without the introduction and continuance of the furlough scheme.
Rishi Sunak delivered a budget for the moment. He has yet to face some difficult moments with his own back benchers in the weeks and months ahead. Not least the parsimonious pay offer to NHS workers ...
The Saturday Economist
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