This was a ‘kitchen sink’ Budget according to the BBC’s Faisal Islam, with the Chancellor throwing almost everything into it, including a wide range of tax cuts and incentives. A mini-Budget it wasn’t. But there was little to explain how it would all be funded. The shadow Chancellor Rachel Reeves perhaps explained it best when she said that “never before has Government borrowed so much and explained so little”.
Boris Johnson fired the starting pistol for a major jab fest over the next three weeks in what could be dubbed the jab before the storm. It comes at a time when the UK’s recovery appears to have stalledin October as firms struggled with supply chain problems and staff shortages even pre-Omicron. Reintroduction of restrictions to curb spread of Omicron, will hit travel and hospitality sectors the hardest again. October’s slowdown will further complicate monetary policy dilemma, and the prospects of a delaying a rate hike this week are strengthening.
Today’s Budget was largely as expected. Much of the content had been flagged beforehand, and then there were the big manifesto pledges that were off limits. But that’s not to say it wasn’t a significant Budget, and it may indeed be the last, or penultimate, big spending Budget. Rishi Sunak today announced £37.5billion of spending in the current financial year and the next. Apart from last year’s Budget, it is, by any historical comparisons outside of the pandemic, a huge amount of spending. What’s concerning though is that spending in future years is going to be cut at progressively larger amounts, and next April will therefore herald the start of four consecutive years of public spending cuts. On the tax front, there were further cuts or extensions of existing tax cuts in some areas but also tax rises in others.
Rishi Sunak may only have been Chancellor for five months but he is already a crisis veteran. Having already splashed out hundreds of billions of pounds worth of support – £281.5bn since 11 March 2020 – today’s package added a further £30bn. Phase 1 of the Chancellor’s response was about protection via blanket support for the economy. Significantly Phase 2 of the economic response, today’s package, is more targeted support and focussed on jobs. The third phase is rebuilding.
Today’s Budget announcement was part of a stimulus ‘double-bill’. The Bank of England unveiled a massive impetus this morning, with a 50-basis point cut in the interest rate and more importantly a package of targeted measures to guarantee credit flow to businesses given the looming threat of Coronavirus.
This afternoon’s instalment in the form of Rishi Sunak’s debut Budget complemented this by acting to ease cash flow concerns for households and businesses. In addition, the public spending taps have been turned on to support public services and to enable investment in infrastructure – in relation to everything from climate change to transport and housing. One thing that was missing however was any meaningful increase in taxes. Normal Budgets are generally a careful balancing act of revenue-raising and spending commitments, but not today, which was a rather one-sided affair in that it was overwhelming focused on spending.
Where is all of this money coming from if not from tax rises? The answer is borrowing. The UK is set to borrow £300billion over the next five years.
The Bank of England’s latest forecasts show inflation staying above the 2% target, despite rising UK rate expectations. Prices should get a further boost from the looser fiscal policy announced in the Budget. But, as ever, all those forecasts hinge on a smooth Brexit.
The UK housing market is tipped to feature prominently in the Chancellor’s Budget. A range of initiatives are expected to be unveiled, targeted primarily at the younger generation. There are calls for a shift in emphasis from ‘Help to Buy’ to ‘Help to Build’ schemes. It remains to be seen how Northern Ireland will benefit from these. But it’s worth considering how the Northern Ireland housing building sector is currently faring. Continue reading →