The message from today’s Budget could not have been clearer. We’re heading for a coronavirus-caused recession. It’s likely to be a big, bad one. And the government has decided to throw the fiscal kitchen-sink at minimising the impact. The Chancellor’s assured and impressive first Budget speech started with a full 20 minutes on the likely economic consequences of the pandemic, and his plan to inject £30bn of fiscal stimulus to tackle it, targeted at helping small businesses and individuals forced into hardship.
Despite the Chancellor’s best efforts, it was hard not to view the remainder of his Budget speech as being in the shadow of the main event. But it would be a huge mistake to ignore it. Especially as today marked a decisive break from the fiscally conservative orthodoxy that has governed Britain for the last 40 years, with plans announced for huge new levels of public investment in infrastructure. The days of prioritising balancing the books appear to be over, with the OBR confirming today’s plans represent the biggest and most sustained fiscal boost for nearly 30 years. Rishi Sunak announced that public net investment will reach levels not seen since 1955 and said that they will be triple the average in the period from 1980-2020. Specifics on how all that money will be spent were thin on the ground, with details to follow in the coming months, but he promised roads, railways and broadband would all see big sums of public money to bring them into the 21st century.
Normally, such a spending splurge would be matched by tax rises to pay for them. But these were few on the ground as well. Aside from a levy on domestic gas (the boiler tax, anyone?), there was more focus on where taxes were coming down too, including a crowd pleasing cut to VAT on e-books and online newspapers, and freezes for alcohol taxes and fuel duty. There was also a significant tax cut for those earning over £100,000 per year, which the Chancellor suspiciously forgot to mention in his speech.
The net of all of this is a vast increase in public borrowing, going up from £146bn to £243bn over the next four years. And this is even before the impact of coronavirus is taken into account. One can only wonder what today’s acolytes of Margaret Thatcher and Sir Keith Joseph, who make up the most of the Conservative benches, really make of this radical change in economic direction? If it wasn’t before, Thatcherism is truly dead now.
But all of this is in the shadow of the virus. As the Chancellor conceded, the economic forecasts were done some weeks ago before the impact of coronavirus was better known – and even they were suggesting growth below 2% per year over the coming period. Once the virus is factored in, these forecasts, and the fiscal picture, will be smashed to smithereens. For the second time in a little over a decade, we’re heading into the economic unknown. For the sake of everyone, we’d better hope the spend, spend, spend strategy is an effective one.