Politics

Chancellor announces return to borrowing in ‘Coronavirus Budget’

Rishi Sunak delivered his first budget after only being Chancellor for four weeks. Source: Wikimedia Commons

Rishi Sunak, the new Chancellor of the Exchequer announced the first budget for the new Conservative Government last week on Wednesday, March 12. It was a budget that announced a return to large borrowing, meaning Conservative austerity was definitively brought to an end. However, the budget was marred by the Coronavirus outbreak. Tackling the crisis was at the centre of many of the announcements. Most notably the Chancellor is suspending business rates for many firms in England, extending sick pay and boosting NHS funding.

Since the Coronavirus outbreak has been confirmed as a pandemic by the World Health Organisation, the Government has aimed to take control of the spread and enact measures designed to contain and delay the outbreak. In addition to a general increase in spending, a £5bn emergency response fund has been announced to support the NHS and other public services in England. The Chancellor in his budget speech to the House of Commons said that “whatever extra resources our NHS needs to cope with Coronavirus, it will get.”

The headline policy was an overall £30 billion stimulus into the economy. The figure has been financed by a large uptick in Government borrowing, an increase of 1.8% of GDP in 2019 to 2.4% in 2021. It equates to £125 billion of extra borrowing by 2024. It is this figure that ultimately defines the end of 10 years of Tory austerity. 

The budget also confirmed an announcement by Boris Johnson two weeks ago regarding proposal to extend sick pay for those self-isolating. All those advised to self-isolate because of coronavirus will be entitled to statuary sick pay. Self-employed workers who are not eligible will also be able to claim employment allowance after day one rather than a week, as it was previously set. 

The Government hopes these measures will help mitigate the expected temporary downturn the UK economy will take as a result of the impact of coronavirus. Sunak himself stated “there is likely to be a temporary disruption to our economy” adding that “for a period, it’s going to be tough.”

Despite the Coronavirus measures garnering much of the attention on the budget, there were other stand out policies announced. The tax threshold for National Insurance contributions will rise from £8,632 to £9,500. Previously announced in November, the move will take 500,000 employees out of needing to pay tax altogether. This means it is the largest tax giveaway for lower-paid workers in the whole budget, it represents a tax cut for 31 million people saving the typical employee approximately £100.

The ‘tampon tax’, after a continued campaign by pressure groups, is to be scrapped. The 5% VAT on women’s sanitary products has often caused widespread negative attention and has often been cited as a contributor to an increase in period poverty across the UK.

In a move to support businesses, the Government announced that business rates in England will also be abolished for firms in retail, leisure and hospitality sectors. With landmarks such as pubs struggling to remain profitable, and the coronavirus expected to further reduce the number of pub-goers; duties on spirits, beer, cider and wine are also to be frozen. Pubs will also benefit from business rate discounts, set to rise from £1000 to £5000 this year.

Environmental policies were also the focus of the Chancellor’s budget. A plastic packaging tax is set to come into force from April 2022. This means manufactures will be charged £200 per tonne if the products produced have less than 30% recyclable material. There was also £120 million in emergency relief to support English communities affected by this year’s winter flooding. A total investment in flood defences in England is also to be doubled to £5.2bn over the next five years.

 

Ultimately it is the Governments large infrastructure policies that symbolise the wider vision of Boris Johnson’s majority government. An eye-watering £600bn is to set to be invested on roads, rail broadband and housing by 2025. There is a commitment to provide gigabit broadband across the whole nation coming at a cost of £5bn. Alongside the Governments renewed commitment to HS2, the budget proposals are projected to be the largest stimulus in the country’s infrastructure ever announced. There will also be £27bn for motorways and an additional £2.5bn available to fix potholes and resurface roads in England over the next five years.

The increased amount of spending is part of the Governments wider aim of ‘levelling up’ and tackling the North-South divide. The Treasury’s Green Book rules are to be reviewed to factor regional prosperity into spending decisions. Another policy is designed to devolve power and influence to the deprived regions outside of London and the South East of England.

Many of the headline policies that have been announced were originally part of the Conservative Party manifesto from the 2019 General Election. The budget simply confirms that the policies are officially part of the Government’s spending plans. The Labour Shadow Chancellor, John McDonnell, criticised the budget for “offering nothing on social care.” The Government has promised to reach a cross-party consensus on how to tackle the growing issue of how to fund social care. With social care services expected to be under increased strain due to the coronavirus. McDonnell added that he was therefore “absolutely worried” about the state of the social care system in the UK. Health Secretary Matt Hancock responded by saying that social care will get “everything it needs” to respond to the outbreak.

The budget has come at a time when tackling the outbreak of Coronavirus is at the centre of the world’s attention. With the Government attempting to appear in control of the outbreak, the Government will now hope that the emergency measures announced in the budget will provide adequate security for an economy that is predicted to shrink.  

 

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