A Budget fit to see us through this crisis

Wednesday’s Budget was always going to be a major national event: it was to be the first Budget of a Johnson government with a Commons majority, a Budget for Brexit and one that would introduce Rishi Sunak, Chancellor for just three weeks, to the voters. The coronavirus means that it will be even more significant than expected: the most important, in fact, since the financial crash of 2007-08. There is a risk that the panic is more economically damaging than the disease itself. Global markets are in freefall, countries are rolling out stimulus measures, and the US central bank has cut interest rates. The UK’S fiscal rules, which have shaped policy-making for a decade, will undoubtedly go out of the window.

The Government must not shelve any plans for free market reform – on the contrary, they will be vital to see us through the crisis and to help us emerge on the other side. Mr Sunak has an opportunity to show a steady hand, yes, but also some courage and imagination. He must not just react to events. He must get ahead of them.

Britain needs to see action in three vital areas. First, companies that are most directly affected by the virus, such as airlines, tour operators and high street shops. Secondly, the self-employed, who have no one to keep them afloat when business is down. And thirdly, the general economy, which is believed to be on the verge of a contraction that would belie our fundamental strengths. As a general rule, the state should not pick winners and losers, but the vast majority of British enterprises that face difficulty are well managed and perfectly profitable under normal circumstances. They just need help to get over the hump. What is required, then, is flexibility and, as the Government has said, no one should be penalised for doing the right thing, such as self-isolating or protecting employees and customers from exposure.

To help the most at-risk companies, the Government should offer tax holidays, and Mr Sunak should coordinate action with banks. Rules on capital requirements limit how generous banks can be to customers, but with some small tweaks to financial regulations they could more easily offer mortgage payment holidays or cut interest rates on loans.

For the self-employed, the issue is cash flow: the Government has indicated that the self-employed will be entitled to apply for Universal Credit, but that can take weeks to come through, forcing them to eat into their savings (if they have any). It might be necessary to set up a temporary assistance scheme. One sensible move would be to revise HMRC rules that insist the self-employed pay tax on next year’s predicted earnings in advance. The rule is punitive and wasteful anyway: incomes go up and down and HMRC often has to pay back money it should never have demanded.

Finally, serious steps have to be taken to keep the economy afloat, particularly with cuts to business rates to help the high street and perhaps a reduction to VAT. The Government should maintain income tax cuts as a central ambition of this Parliament: the more that people can keep of their own money, the greater their savings and investments and the better the economic picture.

At the very least, this crisis should absolutely rule out any increases in taxation, including the dreadful policies that have been rumoured in recent weeks. There must be no stealth taxes, no gimmicks and no anti-growth measures.

Instead, the Budget should try to fix some of the underlying weaknesses that the virus has exposed. If we are expected to give up domestic flying, we need investment in road and rail; if we are to work more from home then we need a broadband network that is just as fast in the countryside as it is in the cities. If the elderly are particularly vulnerable, and if beds are being taken up in NHS hospitals, then Britain needs finally to create a proper market in social care.

It is a question of turning necessity into a virtue – and if it is true that this virus is going to change the United Kingdom then let the change be that we emerge better-prepared, more secure and more economically dynamic.

If this virus is going to change the UK then let us emerge more secure and economically dynamic