The Chancellor delivered the UK Government's latest Budget today - his 15th major fiscal announcement - setting out plans for the final stages of economic support during the Coronavirus crisis and the forthcoming recovery. The Social Market Foundation's response to the Budget follows below.
On the overall economic outlook, SMF Research Director, Scott Corfe, said:
“Today’s economic forecast highlights the success of the Government’s emergency measures in keeping people in work and businesses afloat – a peak unemployment rate of 6.5% is far lower than expected earlier in the crisis. However, it paints a gloomy picture of the long-term state of the economy, with just 6% growth predicted between 2019 and 2025, representing average growth of just 1% per year.
Even these forecasts could prove optimistic. With the pandemic accelerating change, with the rise of remote working and online retail, unemployment could stay higher for longer, with local economies suppressed across much of the country.
Given predictions of relatively modest inflation and an economy expected to remain short of full capacity in 2021, there could have been room for the government to offer more support to the initial recovery. A policy such as a universal jobs and training guarantee – which would expand or contract according to the scale of unemployment — could have helped fill this gap.
On the Coronavirus Job Retention Scheme, training and skills, SMF Director, James Kirkup, said:
“Extending the furlough scheme to September is prudent, but ministers are missing an opportunity to use furlough to support workers’ skills. The Government is supporting millions of workers who are away from work. They should be offered a much bigger, better remote-learning skills and training package, allowing them to use some of that time away from work to develop new skills.
“Skills Toolkit, the government’s main online training offer, has a budget of less than £1 million a year. That should be dramatically increased with the expanded scheme targeted at furloughed workers.”
On the new mortgage guarantee scheme and Stamp Duty Land Tax holiday extension, SMF Researcher, Jake Shepherd, said:
“Yet more Treasury intervention to support the demand-side of the housing market is not what the UK economy needs and it fails to support some of the country’s most vulnerable households, as the SMF has indicated before.
“Instead of rolling out more measures that risk inflating house prices further, the Chancellor should have done more for people who rent, too many of whom are in arrears. He should also pay more attention to the hundreds of thousands of existing mortgage-holders who have had to use up savings during the crisis and risk repossession if their incomes suddenly fall.”
On Net Zero, SMF Researcher, Amy Norman, said:
“The Chancellor’s commitment to green growth in the Budget 2021 announcements is welcome in order for the UK to recover more sustainably and in-line with the Net Zero agenda. While significant capital investment in green infrastructure is promising – the continued fuel duty freeze once again shows how difficult it is for politicians to turn Net Zero commitments into necessary policy action.
“Public attitudes on fuel duty are quite finely balanced – if politicians refuse to take action on issues such as this, what hope is there for bold leadership on politically difficult decisions on challenges like decarbonising voters’ homes or replacing fuel duty with a future tax regime for electric vehicles, for example?
“Around a million boilers are needed to be replaced a year by 2050, but the majority of the public are largely unaware of the need for this or the associated cost and disruption. Reaching Net Zero is ambitious and achievable, but it will require political leadership on tough decisions that bring the public along towards a greener economy.”
On the Help to Grow initiative, SMF Chief Economist, Aveek Bhattacharya, said:
“It is good to see the Chancellor looking to support better business management with his Help to Grow initiative. Improving the quality of management could prove key to resolving the UK’s productivity crisis and in turn increasing the wages of employees.
But the scheme needs to be well thought through, with a focus on providing effective management training. It must not become a get rich quick opportunity for those offering substandard courses which have little impact on management skills.”
On new “super deductions” for business investment, SMF Senior Researcher, Richard Hyde, said:
“The UK’s business investment record persistently lags that of other comparable countries. It is one of the key reasons behind the UK’s relatively poor productivity performance in recent decades. Measures which can help remedy this are therefore to be welcomed, and unusual measures, of which this is one are justified by the precarious economic times.
“However, dramatic short-term announcements are no substitute for properly thought-through reform of the business tax system in the UK. It has been a mess for a long time, subject to much tweaking and complication by successive Chancellors. A reset of the business taxation regime that is structured to be more friendly towards positive business behaviours such as capital investment is long overdue”.
On the Levelling-up Fund, SMF Impact Officer, Linus Pardoe, said:
“The Chancellor is right to recognise the urgent need to boost productivity and output across the regions and strengthen communities, as this will be fundamental if the UK is to make a strong, fair economic recovery.
“Yet the pledge to “end silos in Whitehall” through the £4.8 billion Levelling Up Fund is questionable at best, with local communities forced to bid directly to central government – and against one another – for funding.
“A approach based on pots of cash controlled by central government lacks ambition and does little to bridge the gap between local communities and Whitehall. Such policies are also unlikely to be able to address the structural changes that are taking place in our communities, such as re-imagining high streets and transitioning to a greener future. A better solution would involve the long-term transfer of power, decision-making and resources directly to local communities, letting them decide how best to support high-streets and public spaces in the years ahead.”
On alcohol duty, SMF Chief Economist, Aveek Bhattacharya, said:
“In the teeth of one public health crisis, it is disappointing to see the Government potentially stoking another one by cutting alcohol duty in real terms for the eighth year out of the last nine. Over 2,200 deaths are estimated to have resulted from the government’s previous duty cuts, at a cost to the exchequer of over £1.8 billion a year.
“With the long-term structure of alcohol duties currently under review, we can only hope that the Government takes an approach that better balances support for the pub trade with reducing harm. The SMF has called for a system under which stronger products are taxed more than weaker ones, products of similar strength are taxed the same and a ‘pub relief’ scheme under which duty is lower in pubs than in supermarkets and off-licences.