A Budget for everyone or a Budget for no one?
This week’s budget, the government’s first after the election, was a clear break with the traditional cautious approach most Conservative Chancellors have had in the past. George Osborne’s battle cry of “Let’s fix the roof while the sun is shining” has been set aside in favour of a much more Keynesian approach that most people would struggle to associate with a Conservative government.
But then, these are not normal times and it is legitimate to asks ourselves: Is the sun shining right now, when a global pandemic swiping billions off stock markets and growth forecasts were already not exactly buoyant?
The Government’s answer is that, rather than tighten the purse strings, this is the time to use public funds strategically to allay people’s concerns and prove that this government keeps its promises and is in control.
The Chancellor announced a “COVID-19 Budget”: a £30 billion package aimed at helping the country get through the current pandemic. £5 billion are immediately available to support the NHS respond to the crisis, with a commitment from the government for more funds should the situation demand it. The package also lays out actions to mitigate the inevitable economic impact of the virus: the government will refund Statutory Sick Pay expenses to small and medium businesses and the hospitality sector, allow impacted businesses to delay tax payments, and guarantee business loans even when repayments are delayed. Low income individuals, at great risk of loss of income, will be supported through speedier access to Universal Credit.
The main event, the budget proper, which sets the tone and the course for the next few years of this government, seems to deliver most of the pledges the Conservatives made during the election. It increases public spending on major infrastructure projects, invests in research and into transforming the country into an innovation hub, starts tackling the regional divide between the South East and many other parts of the country, and allocates additional funds to the NHS at this critical time. Even the risk of not delivering on the promise not to increase the debt has been accounted for: the low interest rates make the cost of the debt sustainable and low risk, at least for the foreseeable future. These are all measures that aim to set a different course for the UK’s economy and signal the end of austerity.
So, how will this budget benefit citizens and, particularly, all the people who voted Conservative for the first time at the last election? This is the big gamble for the Chancellor. While no savings were imposed, most departments (with the exception of NHS and Home Office) will still be bound by tight budgets and limitations on the services they can deliver. Local authorities haven’t seen a large increase in funding that would help ease the pressure of the austerity years. Even the investment in the Levelling Up agenda, directed at transport infrastructure and the establishment of highly specialised industrial and innovation clusters, will take years to bring tangible change to the communities in the North of England, Cornwall, and parts of Wales, all of which are still suffering from the loss of mining and heavy industry and decades’ worth of underfunding.
The budget also sends mixed signals on the Net Zero agenda. The government has often spoken of 2020 as “the year of climate action” but this isn’t reflected in a consistent policy strategy. Some headline-friendly measures are very welcome: the £100 million to expand the chargers network for electric vehicles, the £640 million to restore peatlands and tree cover, and the £800 million to establish two Carbon Capture and Storage clusters. However, the decision to retain the freeze in fuel duty, which since 2011 has resulted in an additional 4.5 million carbon tonnes, and £27 billion to expand the road network -rather than focusing on rail- casts doubts on how serious the government is about the Net Zero agenda and whether it is -now or ever- ready to make some less popular decisions to achieve its own targets.
As the first budget, this could have been a great opportunity for the government to clearly signal what its policy priorities and vision are. There is a lot in this budget that will be welcomed by business and the public in general, especially the measures to mitigate the impact of the COVID-19 pandemic on public health and the economy. However, it is a budget that, by trying to make too many sides happy, risks ending up not delivering a clear direction and effective change for anyone.
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