Rishi Sunak and the Disappearing Budget
THE traditional test for aging is that police officers start to look younger. As an economist, I feel the same way about Chancellors of the Exchequer. The present incumbent (aka Second Lord of the Treasury) is Rishi Sunak, a mere stripling of 40. Even then, Sunak does not break any age records. The youngest Chancellor in the past century was actually George Osborne, who entered Number 11 when only 38. So you’ll appreciate my feeling a bit like Methuselah if I tell you my first journalistic effort criticising a Chancellor was a school essay lambasting Selwyn Lloyd for raising the tax on sweets. (Hands up if you remember the slimy Mr Lloyd!)
Once again, the youthful Sunak has summarily cancelled this year’s Budget. But he did turn up at Westminster on September 24 to proffer a mini economic package of sorts. This follows the second spike in Covid-19 cases and the latest lockdown rules. As it becomes clearer that the virus has no intention of disappearing soon, so it becomes equally certain that the British economy is comprehensively f***ed, to use a scientific term we economists in private.
I know that Sunak didn’t bother to let the devolved administrations know he was cancelling the Budget. This is the second time he’s done this. But I can’t work up too much synthetic anger. Add in Brexit and the uncertainty over who is going to be in the White House next January, and any economic forecasts are simply bollocks. If you can’t forecast, you can’t do a Budget. It was obvious Sunak would cancel the annual pantomime waving of his red box, in favour of making things up as he goes along. I presume St Andrews House had factored this in.
Of course, we will still get an Office for Budget Responsibility (OBR) forecast later in the autumn, except it won’t be worth anything. The cratering of output and jobs has effectively made most forecasting tools obsolete. Take GDP growth estimates, for instance. Given the existing massive loss of output, we would expect growth forecasts too look spectacular – but only because we are coming off such a low base. Ditto with employment numbers. But there will still be huge absolute unemployment and an absolute real reduction in production. Who cares about marginal improvements in those circumstances?
So when Chancellor Sunak trumpets “three consecutive months of growth” he is superficially correct. But output – the real stuff the economy creates – is well down on the start of the year and will remain that way (I’d predict) till well into next year if not 2022 or later. Even then, we’ll only be back to where we were in January 2020. So ignore all growth forecasts from now on.
Then there is Brexit. I still think the odds are on the EU and Boris cobbling together some trade deal before the end of the year, even if does not cover everything. Which it can’t and won’t, given the lack of time. Either way, the practical outcome for trade is so uncertain that – again – all economic forecasts for 2021 are total guesswork. We are all riding by the seat of our pants.
SUNAK’S MINI PACKAGE
That said, what are we to make of Sunak’s September offering? Sunak has tied his colours to a mast that says “no more furlough”. His argument is that the state can’t go on printing money to keep folk at home if (in reality) their jobs are already dead and gone. And after the latest hit to the hospitality industry, there are hundreds of thousands of zombie jobs out there, for certain. However, the very fact the UK economy is in deep crisis means that Sunak was going to have to give some ground of a new wage support package.
However, the new Furlough Mk #2 (aka “Job Support Scheme”) is full of holes. It only runs for only six months, from November. In other words, it is designed to carry the economy through the winter months and the confusions of Brexit trade deal, whatever it is. I’d call that a sticking plaster rather than a support scheme, given the economic winter we face.
The support system applies to those working at least a third of their “normal” hours, and who are being paid the going rate. The Treasury and the employer will jointly cover the remaining two-thirds of their lost pay. All small businesses will be eligible, but larger firms must prove their turnover has fallen. The holes are obvious.
For starters, this will expose the zombie jobs and lead to a massive jump in registered unemployment. De facto, it shifts the unemployed from furlough subsidy to crap Universal Credits. Second, it is an incentive for employers to sack full-time employees and recruit part-timers. That way they access state cash to cover the wage bill. (The Chancellor says such redundancies will be banned. Clearly, he’s never run a small business.) Third, this a complex mechanism to operate for only six months. Four, if you are going to print even more cash to fund this scheme, why not pay a human wage rate on Universal Credit?
But the ticking timebomb has to do with home loan repayments. Sunak’s mortgage holiday finishes at the end of October. Expect a surge in defaults and evictions. This is where working class anger is likely to emerge first.
These Tory shenanigans don’t surprise me. I’m more intrigued by Sunak’s failure to provide proper help to the self-employed – normally a bedrock of Tory support. True, he’s promising to let the self-employed delay paying their income tax bills – but payment will still be enforced eventually. Plus: folk will still need to get through to HM Revenue and Customs on the phone to set up a deferral plan. Good luck on raising HMRC on the phone in under a few hours (if ever).
Sunak also announced he is keeping the 5% VAT in the hospitality and tourism sector till March. That’s welcome but again the issue with this sector is not cost per se but the absence of customers – full stop. It is here we can expect the big bump in unemployment, which will hit Scotland very hard. Surely the real need is to create alternatives to the mass tourism industry.
A WEE THOUGHT
Watching Sunak’s statement on the TV, I reckon he is looking a lot more self-assured than he did when he first entered Parliament, in 2015. The very fact his statement was so short and to the point indicates somebody who is more interested in power than in presentation. If I were lazy Boris, I’d be worried. Of course, Sunak is an ex-banker and hedge fund manager, not a journalist who was sacked for making up quotes. You don’t give up the millionaire day job for the damp, rat-invested, crumbling palace on the Thames unless you are super ambitious.