Turns out there is a magic money tree after all, or perhaps new Chancellor Rishi Sunak has been delving down the back of a really big sofa somewhere in the Treasury building. Austerity, the watchword of British governments for the last ten years, is temporarily suspended. “We will do right by you and your family,” the Chancellor said in his Budget speech on Wednesday, referring to the government’s planned response to the coronavirus. He went on to say that up to a fifth of the working population might need to be off work at any one time and to outline what seems at first sight to be a package of sensible fiscal measures that would be needed to keep the economy afloat through this kind of economic disruption.
Letting small businesses have a year’s relief from business rates, the possibility of government-backed loans, the promise to repay the statutory sick pay they may have to pay to their employees, look like positive measures. Paying sickness benefits from the first and not the fourth day of sickness, letting the unemployed claim benefits by telephone or online instead of face to face and allowing the NHS 111 service to issue sick notes may be of similar help to individuals. The devil, of course, is in the detail: when will this start? What level of proof will be demanded in order to qualify? How will businesses and individuals have to claim the money and how long will it take to get to them? And, crucially, what about people neither employed nor claiming benefits? Those who have small businesses not in any of the categories targeted for relief, or are self employed or in the gig economy but aren’t already claiming Universal Credit, with its built in five-week delay period after the initial claim?
For those who speak political language, the key phrase from the Budget speech was that economic relief from the effects of the coronavirus will be “temporary, timely and targeted”. This is political code for you’ll only get the money if you apply for it and meet strict criteria: it’s not “helicopter money” paid to everyone regardless.
Outside of the £7 billion targeted at coronavirus measures there is a promise of £5 billion – and more if needed – for the NHS, and something like £175 billion over the life of this parliament for other infrastructure and development projects.
These promises of spending are a traditional part of the ritual of the British Budget. The Chancellor puts his speech into a special red briefcase/box, holds it up to the cameras outside 11 Downing Street, proceeds down the road to the House of Commons where he reads it to a packed parliament who cheer at each mention of government spending as if the money was going to be handed to them in a brown envelope on the way out of the building. The interesting part comes from examining the documents on gov.uk website afterwards and finding where the bad news is hidden.
For example, during the speech there was a great deal of cheering at the announcements that there will be no duty increases on fuel and alcohol. This somehow was spun as a tax cut, rather in the way that previously an ambition to achieve a reduction in nurses voluntarily leaving the NHS was spun as an increase in nurse numbers. On the other hand, the widely anticipated abolition of entrepreneurs’ relief, a capital gains relief for business owners, was capped at £1 million so as to protect small business owners, and there was a new plastic packaging tax, on manufactured or imported plastics that contain less than 30% recycled material. But these tax increases were small beer next to the spending promises. There was £500m a year to fill in potholes, at least £800m for a British ARPA “a new blues-skies funding agency” for scientific research (rumoured to be a hobby-horse of the Prime Minister’s eminence grize, Dominic Cummings) and £5bn for rural broadband. Add up a few million here and a few billion there and suddenly you are talking about real money.
Where is it coming from? There are no substantive tax increases and the forecast for growth is mediocre at best. The independent Office for Budget Responsibility was quoted in the Budget speech as saying that the “large planned increase in public investment should boost potential output too”. Does that mean, as many of us have long suspected, that austerity was a choice rather than a necessity, an act of fiscal self-harm? Or is there just a really, really big sofa in the basement of 100 Parliament Street?
Image credit: Stux