A budget for recovery or a budget to balance the books? Just a few days to go, before the secrets of the Red Box are revealed. Tory big donors are warning "to increase taxes now would be utterly wrong and risk recession."
The Treasury is threatening to hike corporation tax and capital gains tax. A one percent hike in corporation tax seems likely. Further "stealth moves" on pension allowances and higher tax bands seem probable.
The Chancellor will deliver a budget, which will be forced to continue support for business and the jobs market specifically. The Chancellor will be relieved, the latest job figures, suggest the damage to the economy has not been too severe as yet. At the end of December, the unemployment rate had risen to 5.1%. The number of people out of work had risen by 400,000, to 1.7 million. Vacancies are returning to the highs of last year. Headline earnings have almost doubled to 4.7%.
Not bad for an economy which as endured a 10% shock to output. It really is all about the furlough scheme. Without government intervention, the unemployment rate could have risen to over 12%. The systemic shock to the economy would have undermined any prospects for recovery. Applying medieval measures of containment to a modern economy could have driven us all back to the dark ages.
The latest data from HMRC confirm. In Januuary, the number of jobs furloughed in the UK peaked at 4.9 million. At the end of the month, 4.7 million remained on the scheme. Sectors most badly hit are reflected in the data. 1.15 million in accommodation and food; 938,000 in retail and distribution; 315,000 in arts and entertainment; 550,000 in manufacturing and construction.
The Prime Minister's "Route to Recovery" is now well marked. The numbers furloughed should begin to fall quite rapidly. Just four months ago, in September and October, the overall total was down to 2.5 million, even as partial lock down continued.
Job elasticity, in response to a release of output restraint is high, especially in the sectors most badly hit. Food, accommodation, arts, entertainment and retail will benefit from release. Some structural challenges will present, as a result of digital acceleration but the bounce back could be much faster than expected.
The impact of the route to recovery on our output model suggests growth of 6.5% may be possible this year. The Chancellor may have his time to balance the books in due course. For the moment this remains the time to budget for recovery. Expect the furlough and other business support schemes to be extended to the end of June ... at least ...
The Saturday Economist
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