Why you can bank on a second budget this year

In ordinary times Sunak’s budget would have generated and indeed received a great deal of discussion and scrutiny. For if few were willing to believe Philip Hammond’s claim to have ended public spending “austerity” – that first started under the Conservative/Liberal Democrat coalition way back in 2010 – then any claims of Tory austerity made now must ring absolutely hollow. Such is the Tories’ hosing of taxpayers’ money into the economy, especially on capital spending, there is practically a tsunami of funds approaching that will now bring its own problems, if not immediately then for future generations who will have to pay for the additional borrowing.

Some might say the generational theft of those alive now benefitting by taking from those who will as a result have to pay higher taxes in the future is only just, given that it is the younger generations who have been so keen to support such Corbynesque socialist economic policies. I cannot be so sanguine for I love my children and grandchildren and cannot accept they and the communities they shall in the future live in should be saddled by our generations’ financial indiscipline and greed.

Allowing the annual deficit to grow from £30bn to £60bn is not prudent; but worse still it shall not stop there. Although allowance has been made for the economic impact of Covid19 I believe it has been underestimated and we can easily expect the deficit, and hence borrowing to reach £100bn in pretty short order. Sunak will need an emergency budget before Christmas.

In time the UK’s debt will steadily mount, well north of the circa two trillion it is now, and when interest rates rise we shall face a calamity requiring austerity all over again of a more severe nature.

So you see dear reader, there is logic and compassion to my belief we should continue to control our spending and seek to move from deficit and into surplus – so that we can begin to pay down the debt we have allowed to grow since this current millennium arrived.

The reason I fear the Chancellor’s figures are going to prove worthless is that after a business trip to London on Friday I have absolutely no doubt the predicted growth of 1.1% for 2020 will prove to be wildly overestimated. Instead I expect we are about to experience a very tough recession that will come about because of a Covid19 credit crunch, as cash flow difficulties cause many businesses to fail and unemployment to rise, feeding into further economic problems. This must put a strain on tax revenues, which in such circumstances will fall – just as the requirement to fund greater demands on welfare benefits will be rising.

Evidence is of course only anecdotal at the moment, but it was difficult to ignore the restaurants in London’s West End were deserted for what was a Friday lunchtime and on that evening, when more go home for the weekend, Kings Cross was only about a third full of passengers I might normally witness underneath the departures board. The evidence being sent to me by colleagues about the contracts they have lost and business orders being cancelled (and that of their friends and relatives) tells me there is already a huge economic knock-on effect happening already from precautions being taken to avoid the virus.

In some respects changing arrangements by cancelling travel, conferences, meetings, events and such like is not surprising and might appear common sense – and there is of course the repercussions of other countries taking far more interventionist restrictions than our own government has felt is right for us at this time – but all of this will hit the real economy that either provides services or makes things for a price. Much of the production (employees’ salaries, VAT at every stage, excise duties etc and also the profit ) is then taxed – if businesses are forced to halt then revenues will plummet.

If people are being let go, if sales are not being made, if profits are not achieved then taxes cannot be gathered.

The government must therefore reassess how it raises money at this time by ensuring the economy has a chance of continuing under the new social arrangements while we get through the crisis the virus will cause.

Business rates are a deadweight cost paid by most corporations whatever their size and in such unusual times as now become far more damaging than VAT, corporation tax, capital gains taxes and other transaction taxes; this is because business rates are taxed irrespective of any trading taking place. It would make far better sense to grant a business rate holiday to all businesses large and small than to start trying to pick winners and losers when we have no way of knowing how the impact of Covid19 will play out.

One of the most ridiculous aspects of the budget was the Chancellor’s decision to remove most of the CGT relief on entrepreneurs selling their businesses. I have already received a litany of examples of deals now being cancelled as the vendors will suddenly be faced with bills of typically £1m plus. If a deal is abandoned the outcome is there will be no tax paid at all anyway and no reinvestment from the sale into other taxable activities. It is an absurd decision the Chancellor must revisit and reverse.

It is also being argued that we shall have to extend the transition agreement with the EU beyond the end of this year as it will not be possible to conclude negotiations (as if people need to meet to negotiate). Actually the reverse is true, we cannot leave the EU quickly enough as it will provide us with the opportunity to be far more flexible in trading with the rest of the world so we can find new sources of income, alter the way we want to do things that EU regulations we still work under will not allow. The reality is our world is about to change significantly and we need to think far more creatively to protect our community.

Brian Monteith is managing editor of brexit-watch.org

Why you can bank on a second budget this year - Brian Monteith