Rishi Sunak delivered an extremely accomplished and assured performance on Wednesday afternoon at the Dispatch Box as the newly installed Chancellor, delivering his first Budget with flair and panache. Here, Khev Limbajee looks at how he performed and what he promised to deliver.
This was a Budget like no other in both content and circumstance. The coronavirus crisis was in the foreground of everyone’s minds including the Chancellor’s. He made an injection of £30 billion to boost the economy and as part of the Government’s response to tackle the crisis of Covid 19. Of the £30bn, £12bn is be specifically targeted at coronavirus measures, including at least £5bn for the NHS and £7bn for business and workers. The funds include £2bn sick-pay rebates for up to 2 million small businesses with fewer than 250 employees.
Looking at the wider spending programme, on infrastructure more than £600bn is set to be spent on roads, rail, broadband and housing by the middle of 2025. This includes £200m for local communities for flood resilience measures. Business rates are to be suspended for shops and cafes with a rateable value below £51,000 – raising some questions over how this might affect local authority funding, though compensation is going to be made available.
As always, housing played a key role. There is now a new £1bn fund to remove unsafe combustible cladding from all public and private housing higher than 18 metres. The Government will provide an additional £1.15 billion discounted lending via the Public Works Loan Board (PWLB) to support specific local authority infrastructure projects. The Chancellor also announced an additional £9.5 billion for the Affordable Homes Programme as well as £400m Brownfield Housing Fund to bring forward more brownfield land for development. In total, the programme will allocate £12.2 billion of grant funding from 2021-22 to build affordable homes across England over a five-year period.
The nations and regions also got a boost with a commitment to the Northern Powerhouse, an extra £640m for Scotland, £360m for Wales, and £210m for Northern Ireland. At the same time he pledged to move part of the machinery of Government out of Central London to other parts of the country – 22 000 civil servants from Whitehall to the regions.
It felt like it could have been a Labour Chancellor delivering this budget – indeed if Labour had won in December, how dissimilar would Shadow Chancellor John McDonnell’s budget have looked? And, how would this be funded? The answer is by borrowing. The Government is going to borrow £14.6bn more this year than previously forecast, the equivalent to 2.1% of GDP. The calculation is that there will be total of additional borrowing of £96.6bn, forecast by 2023-2024, to pay for spending commitments.
In summary, these are some of the key points:
+ £100bn more borrowing in this Parliament than forecast
+ Business rates for shops, cinemas, restaurants and music venues in England with a rateable value below £51,000 suspended for one year
+ 22bn to invest in Research and Development
+ More than £600bn is set to be spent on roads, rail, broadband and housing by the middle of 2025
+ There will be £27bn for motorways and other key roads, including new tunnel for the A303 near Stonehenge
+ Further education colleges will get £1.5bn to upgrade their buildings
+ £650m package to tackle homelessness, providing an extra 6,000 places for rough sleepers
+ Stamp duty surcharge for foreign buyers of UK properties to be levied at 2% from April 2021
+ New £1bn fund to remove all unsafe combustible cladding from all public and private housing higher than 18 metres
+ £12bn affordable homes programme, a multi-year extension of the Affordable Homes Programme
In the days to come, after the initial reactions have died down, everyone will be looking through the numbers to see what this Budget really will mean for the British Economy. The Office of Budget Responsibility (OBR) predicted last year that economic growth would be 1.4% – now it predicts is to be 1.1%, the slowest rate since the financial crisis.
The extra money being spent will be fuelled by debt. Public borrowing had already been predicted to reach an all-time high by 2022, but the spending announced yesterday will push this even further. It is now predicted there will be £54.8bn in borrowing in the next financial year to bridge the gap between the money it spends and tax revenue coming in – that is much higher than the £40.2bn that had been previously forecast. This is now predicted to rise to £66.7bn in 2021 – 22. The Government is expected to now borrow £100bn more in this Parliament than had been predicted.
With extra borrowing and spending comes the potential for an increase in inflation, or an increase in interest rates to stop the economy from overheating – but also adding to the cost of borrowing. So, Rishi Sunak did say the Budget will get things done and with that injection of cash, things should start to happen. The question will be at what price? And if a Labour Chancellor had proposed such similar measures, what would Tory MPs be saying?
This was an assured and commanding performance by the new Chancellor. But like any budget, the impact will only be assessed over the next few months.