‘Plenty of risks and omissions’ pointed out in Sunak’s budget
THERE are “plenty of risks and omissions” in Rishi Sunak’s first budget, experts have said. The Institute for Fiscal Studies (IFS) director, Paul Johnson, said “only time will tell whether any of the numbers in this budget will have meaning” because of coronavirus.
The budget, which promised huge investment in infrastructure, broadband and mobile phones, as well as fixing potholes, also announced £12bn to tackle coronavirus.
While the Chancellor said the NHS would get what it needed, other measures on sick pay and business rate relief were also announced as a result of the pandemic.
Mr Johnson said the Budget was “two rolled into one” – a normal one setting out medium-term tax and spending plans and emergency measures to tackle coronavirus.
He said: “There are plenty of risks and omissions lurking, though. The bigger risks in the short term probably relate most to difficulties in spending the cash set aside for investment projects effectively, and in disappointing expectations on current spending.
“In the longer term, higher borrowing and debt carry their own risks.
“The lack of any coherent strategy on tax is a long-standing gripe. The lack of strategy on net zero will hopefully be sorted out later in the year, and a second budget will also give the new Chancellor a chance to stake out his ground on tax.”
These are some of the key points of the IFS analysis:
■ The coronavirus package was “timely, targeted and temporary”
“At £12bn it is also substantial. It looks fairly well designed. It remains to be seen whether it will be enough to support public services, support the vulnerable and insulate the economy from long-term effects.” ■ The Office for Budget Responsibility’s (OBR) economic forecasts are very weak
“Even before factoring in possible longer-term effects from the coronavirus.
“Projected growth rates averaging barely over 1.5% a year for the next five years are feeble and indicative of an economy that is not in a robust position for coping with shocks like the coronavirus.
“The OBR continues to assume an orderly move to a free trade agreement with the EU. Anything less orderly, or a failure to achieve such an agreement, would weaken an already weak economy even further.” ■ Overall spending will rise by £76bn by 2023-24
That is 9% in real terms between 2019-20 and 2023-24, largely paid for by extra borrowing.
“It will mean the size of the state, measured by looking at public spending as a fraction of national income, stabilising at nearly 41% of national income.
“That is above its pre-crisis level and bigger than at any point between the mid-1980s and the start of the financial crisis.” ■ Investment spending plans are
“genuinely very big”
“This will take investment spending to its highest level in modern times. The challenge will be to ensure this money is well spent. That is a big challenge.”
■ Current spending plans are “nothing like as generous as they appear”
“Average annual increases of 2.8% sound substantial.
“Take account of the need to replace EU funding, and factor in planned increases for health, schools, defence and overseas aid, and there is relatively little here for other departments.
“If this spending envelope is stuck to there are plenty of public services which will not be enjoying much in the way of spending increases over the next few years.”
■ They also look “suspiciously” front-loaded
“Spending increases pencilled in for the next two years are much bigger than what follows. This could suggest top-ups in later budgets and hence a need for more tax or more borrowing.”
■ Current spending per person for most public services will remain well below 2010-11 levels in 2024-25
Outside health, though, spending per person will still be 14% lower, and around 19% lower once you account for the spending that is simply replacing EU funding.
■ The Chancellor is on target to achieve a surplus on the current budget
But only if you look at pre-coronavirus targets.
“There are clearly risks around this. There is a 40% chance that current budget balance will be missed and any significant long-term effect from the coronavirus, or from a failure to reach a trade deal with the EU, would certainly make this target much harder to hit.”
■ Borrowing will peak at £67bn – £30bn above 2018-19 level
“With rising investment spending the current budget balance target is looser than the maximum 2% deficit targeted by Philip Hammond and far looser than Mr Osborne’s commitment for overall balance.
“Nevertheless, this appears entirely consistent with pre-election promises.”
■ What about taxes?
This was a tax-raising budget overall, to the tune of just over £7bn a year.
“This was largely driven by the reversal of the planned cut to corporation tax. It is fair to say that on taxes, as on investment spending and on planned borrowing, this budget did largely deliver on the, admittedly rather limited, manifesto promises.”
“The package of tax changes looks piecemeal and it is not clear they are part of any long-term thoughtthrough strategy.
■ And green issues
“A strategy is due later this year so perhaps a lack of direction this time round is forgivable, but the decisions made in this Budget don’t provide great confidence that the government is willing to grasp the nettle.
“The failure once again even to maintain the real value of fuel duties when oil prices are falling is not encouraging.
“Reducing the scope of ‘red diesel’ is more encouraging, but allowing the relief to continue for farmers and some other users is not. Changes to the Climate Change Levy to recognise the role of gas use in greenhouse gas emissions makes sense. There is no sign of an appetite to tackle use of gas by households, though.
“We still have wildly different costs of carbon according to what fuel is used and by whom. Tackling this is surely a priority for the upcoming review.”