Fire the rocket-boosters
Britain’s public finances are in a mess. the debt is greater than the size of the economy after the Government borrowed a record amount in May to save the country from collapse. the latest Office for national statistics figures show the UK borrowed around £55.2bn in May, about nine times more than the same month last year. this means the deficit – the difference between spending and tax income – for april and May is around £103.7bn, a cool £87bn more than in the same period last year. if the Chancellor rishi sunak carries on like this, he will have notched up the biggest public sector deficit since second World War.
total debt to the end of May is nudging £2trillion, a rise of a fifth on this time last year. that works out at 100.9pc of GDP, the first time it’s been exceeded since 1963.
the numbers are mind-boggling but should come as no surprise. Government receipts fell by nearly a third in May to £40.7bn as the country went into deep freeze. tax receipts from Vat to PaYE to corporation tax collapsed as people stopped spending and companies downed tools.
Quite rightly, sunak pumped billions into the economy via emergency lending and job support schemes helping companies to furlough workers and to keep them ticking over: £29bn to be precise. Whether the harshness of the lockdown was necessary will be bickered over for decades. But once that decision was taken, borrowing at historically low interest rates to support 9m jobs and livelihoods was the correct thing to do.
so how worried should we be by the latest numbers? andrew sentance, a former member of the Bank of England’s monetary policy committee, says not too much. He points out the ratio as UK public debt has hovered around 95pc of GDP since 1700, and has been as high as 250pc after the war. Being able to pay back the debt is the important bit rather than worrying about the actual number.
What matters now is that the Government pulls the right levers for recovery and how sunak balances fiscal and spending policy with his mini-Budget in July. spending cuts have been ruled out as Boris Johnson has promised the era of austerity is dead and buried. Putting up taxes would be madness as people struggle to keep their jobs, and firms coming out of furlough decide to whether to cut their workforces.
that leaves only one serious option: relentless supply side reform – policies designed to make markets and industries run more efficiently – alongside some of the shovel-ready infrastructure projects for levelling up the regions. What’s needed is a mix of appropriate tax cuts, helping bombed-out companies convert debt to equity, and bigger incentives for individuals and companies to invest in start-ups and small and medium firms.
simultaneously, more emphasis needs to go on training and apprenticeships, dynamite needs planting under planning regulations while there should be incentives for new opportunity zones across the country.
One of the many remarkable aspects thrown up by the coronavirus crisis is the generous spirit and flexibility shown by so many companies. supermarket bosses and staff have been superlative in the way they adapted their services to help customers during lockdown.
restaurant and bar owners were quick to switch their trade – helped by a small change in the rules – to offer takeaway services within days. and yes, even the banks caught the mood, and were quick off the mark to offer mortgage holidays and interest rate freezes. Credit where credit is due.
On a local level, there are stories galore of inspiring business leaders and companies coming up with innovative solutions.
andy street, the Mayor of the West Midlands, tells of how within days of the council sending out an alert about PPE shortages, more than 300 local companies offered to switch production. Which is why the Chancellor should take time to listen carefully to what private sector bosses have to say. they know best how to ease us out of lockdown, and which rocket-boosters to fire.
Goodbye Tyrie
THE early departure of chairman Lord tyrie from the Competition and Markets authority is intriguing. He says he cannot do his work properly within the constraints of the job. it’s known he wants tougher rules so regulators can go up against tech companies accused of ripping off consumers. He often argues we have an analogue system of competition and consumer law in a digital age. now tyrie, who quits in september, wants to make his case more forcefully for legislative and other reform, in parliament and beyond. What can he mean by beyond? are we about to see Fiery tyrie – never one to walk away from a fight – take on the FanGs? i do hope so.