The Chancellor, Rishi Sunak, has spent so much time in the spotlight that it seems hard to believe he has not yet been in the job for five months. Yesterday’s Financial Statement was just the latest of a series of announcements by Mr Sunak since he presented his Spring Budget on 11 March, four weeks after entering 11 Downing Street. One way or another, all the announcements have been responses to the financial impact of the Covid-19 pandemic.
His latest statement was perhaps the most difficult, given the circumstances in which it was set:
- The government finances are in deep deficit. In only the first two months of the current financial year, the Treasury borrowed £103.7 billion, which was over six times as much as in the same period in 2019/20 and close to double the Budget forecast for the entire year. In May, for the first time since 1963, total government debt exceeded 100% of GDP the UK’s economic output for the whole year.
- The UK economy contracted by 2.2% in the first quarter of 2020, according to the Office for National Statistics (ONS). In April alone – the first full month of lockdown – the ONS estimates that there was a further 20% shrinkage in output.
- The Chancellor’s flagship employee furlough scheme, the Coronavirus Job Retention Scheme (CJRS), will start to be phased down in August. At that point, employers become responsible for the pension contributions and National Insurance Contributions (NICs) currently met by the Treasury. The CJRS, which has already been extended twice, is set to finish at the end of October. As of 5 July the scheme covered 9.4 million furloughed jobs provided by 1.1 million employers and had received claims totalling £27.4 billion.
- The constituent parts of the UK are each emerging from lockdown, a process that could lead to an increased infection rate and local flare ups, as has happened in many US states and parts of Europe. On the day before the Chancellor’s statement, the Organisation for Economic Development published a report saying the UK unemployment rate could reach 14.8% by the end of 2020 if there is a second wave.
The challenge for the Chancellor in his Summer Statement was to start the transition from the emergency employment support that has so far been the focus of his strategy. He presented his statement as a ‘Plan for Jobs’, composed of three elements promoting jobs:
The Chancellor placed a price tag on his measures of up to £30 billion. He also promised that in the Autumn Budget and Spending Review he would deal “with the challenges facing our public finances”.
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