If ever we needed a competent and reassuring performance from a UK Chancellor, it was yesterday and to his credit, Rishi Sunak delivered. In practical terms, this was two budgets in one – the first a series of measures to ease the escalating economic squeeze resulting from the coronavirus (Covid-19) and the second, a bold and expansionary plan to improve the long-term economic competitiveness of the UK.
The immediate priority was to provide some relief for the short term economic impact of Covid-19 and the measures announced were carefully coordinated to complement the actions announced by the Bank of England earlier that day. Of course, Governments and Central Banks are not able to solve every problem, so it is important that whatever they do be carefully targeted to gain the maximum positive effect.
The headline was an immediate stimulus of £12 billion to add to the £18 billion worth of additional public spending already announced. The health crisis that is certain to envelop us in the coming months will place the NHS under unprecedented strain and there was a promise to do whatever it takes, whatever it costs. For business, the priority was to help cash flow for small businesses through the crisis. The main headlines were that Government will finance 14 days’ statutory sick pay for employees of small businesses and that business rates for small business and businesses in those sectors hardest hit by the crisis (such as leisure and entertainment) will be abolished for a year. To spread this stimulus more widely, smaller businesses that pay no business rates will receive a £3,000 cash grant. Furthermore, a new temporary loan scheme will support small and medium sized businesses with government guarantees.
In addition to the much-needed short-term largesse, the Chancellor opened the spending taps for long-term projects. Additional spending on infrastructure and other investments intended to improve the UK’s productivity will total £175 billion over the next 5 years. £100 billion of that spending is to be financed by additional borrowing but, as the Chancellor explained, with 10-year gilt yields rapidly heading for zero and no shortage of buyers in the sovereign bond market, it is now cheaper for the Government to borrow than ever before.
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