Virus resurgence places Rishi Sunak's stance in peril

Oct 21, 2020

Remember the coronavirus budget? 

It was only on 11 March, but it belongs to a different universe, socially and fiscally.

Chancellor Rishi Sunak announced £30bn of measures to tackle the virus and, when he was done, colleagues packed thigh-to-thigh on the green benches leaned in to clap him on the shoulder in congratulation.

The virus was not as impressed.

Nine days later Mr Sunak was back with an even larger programme of support, headlined by the Job Retention Scheme – furlough – and government-backed loans for business.

It did not end there. In July he presented his Plan For Jobs and the Eat Out To Help Out giveaway, all personalised in social media posts carrying his signature.

Last month came the Winter Economic Plan, setting out the Job Support Scheme, the less-generous successor to furlough. Within a fortnight that was updated with a version for businesses forced to close in local lockdowns.

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In just six months, the rookie chancellor has made five major interventions, a reflection of the extraordinary challenge presented by the virus and the devastating economic impact of efforts to control it.

Soon he will make another, a spending review truncated by COVID-19.

Instead of a three-year plan this will be a limited one-year version, with only the NHS, education and big infrastructure projects seeing multi-year commitments met.

Track the economy's recovery from lockdown

Track the economy’s recovery from lockdown

The short-term scope reflects the underlying truth of the pandemic: economic policy and health policy are fundamentally entwined, and every attempt to get ahead of the virus has been reeled in by the pace of the outbreak.

In just six months the government has borrowed £208bn, taking the national debt to more than 103% of GDP.

In September alone, borrowing rose by £36bn, equivalent to almost half of all spending, £5.9bn of which went on the furlough scheme and self-employed support.

That’s about the same amount that tax receipts fell year-on-year as a consequence of the slowing economy and relief offered by HMRC.

In that context, the £5m gap that scuppered a deal between central government and Greater Manchester mayor Andy Burnham is a pittance. Yet it also explains why the chancellor is apparently so keen to rein in the level of support he is offering.

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‘Why does this govt hate Greater Manchester’?

The divisive row cuts to the heart of the debate apparently dividing Mr Sunak and the prime minister: how much deeper should they dig to support the economy with no end to the pandemic in sight?

At the start they established a fundamental principle, that businesses and jobs closed down by COVID should be supported, primarily via the furlough scheme that comes to an end on Saturday.

Just as the level of support is due to fall however, the virus has come roaring back.

Unlike Germany and France, where furlough has been extended, the UK is cutting support, with the replacement Job Support Scheme, and the version for businesses under lockdown, both judged insufficient by businesses trying to make ends meet.

Where jobs have been lost in the UK

Where jobs have been lost in the UK

In the last 10 days Mr Sunak has stayed away from local negotiations and stuck tightly to his script that the new measures are good enough for “businesses that remain viable”.

But if the last six months tell us anything, it is that his position may not hold.

Soon the government is likely to have to impose Tier 3 measures on the West Midlands, a region led by Conservative mayor Andy Street, who will doubtless want the best deal for his constituents too.

By Christmas a wave of unemployment held back by furlough will have begun to break.

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‘Now is not the time to balance the books’ – IMF boss

And before the spring, and what everyone hopes will be seasonal relief from coronavirus, the definition of viability may have changed again.

The bottom line is that nobody knows what is going to happen next, but few expect anything to get better.

Just how bad may depend on whether the chancellor cuts support on principle, or looks at the practical reality of a devastated economy and thinks again.

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