Yesterday’s plan was small-scale and short-termistby Andrew Sentance / September 25, 2020 / Leave a comment
September has been a momentous month for the management of the coronavirus pandemic in the UK. Children have returned to school and students have started to go back to their universities. The government started with a message about “getting back to the office” and returning to work as normal.
But as the month has progressed, we have heard the sound of screeching brakes and a sharp reversal in direction. The virus is not as well-contained as we hoped. New restrictions have come into force. And more financial support is required from the government to help the economy through the winter months.
The Chancellor of the Exchequer Rishi Sunak delivered his new package of measures to parliament on Thursday. At the centre of this “Winter Economic Plan” was a wage subsidy targeted to help those working part-time. There was some limited help for self-employed workers and an extension of VAT relief for the hospitality and tourism sectors.
But there were also many elements missing. No support for the aviation industry—for example through a reduction in Air Passenger Duty. Businesses which rely on weddings, conferences and other events are receiving no direct help. No changes to National Insurance for employers, which might have encouraged them to keep on workers in difficult circumstances.
The overall size of the chancellor’s support package is estimated at around £5bn, spread over five months—so £1bn per month. That is just over half a percentage point of GDP from November to March 2021. The Bank of England estimates that GDP in the current quarter is still 7 per cent down on the end of 2019. This latest package is more like a peashooter than a big bazooka.
So Sunak’s measures will not change the dials for the UK economy. In fact, they will most likely not counteract the new restrictions announced earlier in the week. Taking all the government announcements together, we face a weaker economic outlook now than we did earlier in the month.
What should be done now? We probably need another package of support—announced in October/November. The general impression is that the Johnson government is making policy “on the hoof,” which is always a temptation when events shift dramatically. But the pandemic has been going…