UK faces a ‘severe’ recession as jobs go and debts mount – leader comment

The UK Government will eventually have to start paying back its growing debts, but the economy may not be strong enough until 2022.

Chancellor Rishi Sunak greets an employee during a visit to the Bosch factory in Worceste (Picture: Phil Noble/pool/AFP via Getty Images)
Chancellor Rishi Sunak greets an employee during a visit to the Bosch factory in Worceste (Picture: Phil Noble/pool/AFP via Getty Images)

Following Chancellor Rishi Sunak’s mini-budget – although a £30 billion spending package he announced means there was nothing “mini” about it – Paul Johnson, director of the Institute of Fiscal Studies, warned that we should keep in the back of our minds that “a reckoning, in the form of higher taxes, will come eventually”.

However a caveat that preceded this much-quoted remark may have been actually more important. “The time to pay for all this will come. But not this year and not next. Our capacity to do so will depend above all on how the economy recovers,” he said. So, one of Britain’s leading economists takes the view that this country will not be strong enough to start paying off the vast sums the UK government is currently borrowing until 2022 at the earliest. That gives an indication of just how badly the recession we are entering is likely to be and how long Johnson thinks the effects of coronavirus will last.

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As John Lewis and Boots, two of Britain’s biggest high street names, announced job cuts totalling 5,300, Sunak himself was not exactly trying to sugar-coat the pill, saying that while the government was “throwing everything” at stemming the rising tide of unemployment, the recession would be “severe”. He added an apology that he would not be able to save everyone’s job. When a politician’s answer to a growing crisis is “sorry”, we really are in trouble, even if his stimulus package shows he has other answers.

How well spent those billions turn out to be could be key. Johnson suggested that much of the stamp duty cut in England and the VAT cut for restaurants and others would be “deadweight”.

And he said that it was better to ask whether the £30bn stimulus package could be delivered – rather than whether it was enough – as “even at the scale announced this will be challenging”.

The stamp duty cut prompted a similar move in Scotland with the property price threshold to become liable to pay the Land and Buildings Transaction Tax increased to £250,000. This will clearly be welcomed by people trying to buy a house in these troubled times and a housing market crash is the last thing the country needs; we can only hope that this too does not turn out to be deadweight in the efforts to mitigate the recession.

A hard road lies ahead of us and we’re only just starting to realise how long it may turn out to be.

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