Debate about economy begins
Boris Johnson marginally released UK from lockdown, the parameters appeared deliberately vague allowing business, industry and the public to interpret how to behave; depending on the outcomes the government have leeway to reenforce lockdown or release further measures.
During the Labour Leader’s debut in the House of Commons and in a letter, Keir Starmer challenged the Prime Minister about inconsistencies in his briefings, Boris Johnson wrote back reminding Starmer of the commitment Starmer had made to work constructively with the government against the pandemic.
Since the start of the Coronavirus the government has tried to protect the public health and livelihoods, significantly raising the budget deficit and public debt, on 11 May 7.5Million jobs had been furloughed, the deferred debt is estimated at plus £300Billion. UK economy is already in recession, shrinking 2% in the first quarter; the Treasury needs to avoid a “Great Depression” by making conditions favourable to investors, creating jobs and fair taxes. Thus, the political conversation turns to how to budget for UK’S economic response to Covid-19, how to grow back the post-lockdown economy and how to keep supporting public authorities, the debate is between raising taxes or a sustainable stimulus.
Sir Iain Duncan Smith (IDS), says “What we cannot do is exit from this and enter into a period of clawback”, IDS recommends it should be treated like a wartime debt, a war loan that is accounted for over a longterm, independently of the national budget. Lord Alistair Darling, former Labour Chancellor agreed ‘When the economy is being deliberately suppressed, as it is now for very good reasons, the last thing you want to do is suppress it even further’.
Other senior Tories are warning Johnson not to raise taxes or to cut spending, they say this wrong approach would entrench the economic downturn; the point being it is not a very Conservative policy to raise taxes, but other cabinet ministers argue tax rises may be inevitable if there is permanent scarring to the economy. Typically Conservatives like to raise the government’s tax receipts by lowering tax and increasing the tax base.
Flashback to 2014 when Chancellor George Osborne cut the top rate of income tax by 5% from 50p to 45p for top earners, overseas earners came back and the income tax earned from folks earning £150K plus went from £40Billion to £49Billion.
These are difficult times for Johnson and Chancellor Rishi Sunak, if the economy does not bounce back would the public forgive a U-turn on the manifesto promise of a triple tax lock, freezing income tax – VAT and national insurance for five years?
One ardent conservative suggests some sort of Covid Construction Bond or a Sovereign Wealth Fund for Housing; this combined with relaxing planning regulations would generate employment that would enable building UK’S necessary housing, houses that provide security and investment for citizens and that simultaneously encourages banks to lend; plus investors could get good returns from investing in the housing sector.
Sunak has the full backup of the Bank of England to deliver a broad based stimulus, with mega-low interest rates of 0.1%, and BOE offering large businesses cash for corporate debt, and reducing the amount of capital necessary that banks and building societies need to set against lending to businesses and households.
The Johnson government is making a tremendous effort to make their thinking transparent, a quick online search with relevant keywords will reveal all that the public wants to know.