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From the Queen’s Speech to the next election: what now for the government’s agenda?
From the Queen’s Speech to the next election: what now for the Government’s agenda?

Posts Tagged ‘economy’

Tax Rises Now, An Income Tax Cut To Come

Rishi Sunak has just delivered one of the oddest economic statements in recent years. Sunak punctuated his speech to MPs with warnings from the Office for Budget Responsibility that we were living through a period of “unusually high uncertainty”. Indeed, as confirmation of the gloomy economic climate, the OBR’s growth forecasts for the coming years were revised downwards. Ominously, the Chancellor made clear that these forecasts had not considered the consequences of the war in Ukraine. Sunak was blunt. He acknowledged the economic situation could “worsen”.

Yet he felt the need to stride through the foggy future and announce a cut to the basic rate of income tax in 2024. The strange announcement is illuminating for several reasons. For businesses wondering when the next election will be here is a big clue. Boris Johnson and Sunak are targeting 2024 and not an early election next year. They seek a campaign following a tax-cutting budget.

Usually a pre-election tax cut is kept as a surprise until the very last minute to propel a governing party towards a campaign. But, given today’s announcement, two years before implementation, there will now be no surprise in 2024. The far-off pledge shows that Johnson and Sunak are alarmed by the commentary about their tax-rising policies over the last couple of years. As worried Tory MPs have noted, the duo have presided over more tax rises already than Blair and Brown did in ten years. For different reasons both Johnson and Sunak needed some good news now about a cut in income tax. As a result, they announced it early. Johnson wants to keep his job; Sunak would like to be Prime Minister. They tried to give Tory MPs some distant good news, but the pledge is both politically and economically risky. Will they have to find other surprises by 2024? Will the cut seem credible then?

The measures that take immediate effect are broadly unsurprising: a cut in fuel duty and the lifting of the threshold before National Insurance is paid. Some Tory MPs were delighted that the threshold was raised by £3,000, higher than they had anticipated.

But on the whole Sunak did the least possible in the short term. He knows he will have to do more in the autumn when he delivers his official annual Budget. This was only meant to be an economic update, but there has not been a single statement from Sunak during a period of economic calm. This was no exception. He had no choice but to deliver in effect a mini budget.

Looking ahead Sunak could not have been clearer as to how businesses can engage with government in the run up to the Autumn Budget. If he has had a distinctive theme as Chancellor, it is his search for a ‘business-led recovery’. This was the main topic in his Mais lecture, delivered on the day Russia invaded Ukraine and therefore largely overlooked. Sunak had spent huge amounts of time on the lecture, traditionally regarded as the address that defines Chancellors. In his statement to MPs, he expanded on the Mais lecture, telling them he was exploring “tax cutting options” that encourage the private sector to “innovate”, invest in vocational training, spend more on R and D, and on capital investment. He plans a big package of fiscal reforms this autumn and will be consulting with businesses in the coming months. Sunak sees these reforms as a way of addressing the UK’s relatively low productivity and to boost economic growth when the economy is weak.

I sense he genuinely wants to engage with businesses as to how this can be brought about. He has not yet decided on the tax policies that he plans to unveil in the autumn budget.

For businesses wondering how Labour will approach the next election, the Shadow Chancellor, Rachel Reeves, provided several answers in her response. She adopted a similar approach to that of Gordon Brown when he was Shadow Chancellor in the run up to the 1997 election. In her case she attacked Sunak’s National Insurance rise and accused him of wasting taxpayers’ money in spending billions on useless equipment during the pandemic. Brown did the same in 1997, arguing for ‘fair’ taxes rather than ‘higher’ taxes and pledging ‘competent’ spending rather than wasteful expenditure. Reeves also accused Sunak of ignoring the needs of businesses. Like Brown, Reeves wants to be seen as a pro- business Shadow Chancellor. She is keen to engage with business and is struck by how businesses are increasingly keen to engage with her.

For now, the return of inflation has some advantages for Sunak. Higher prices mean higher tax receipts. This has given him some wriggle room to play the fiscal conservative that also intervenes by spending money. But those benefits do not last very long. Soon public sector pay claims will soar in order to meet rising prices. High inflation can also undermine already low levels of economic growth. Inflation – more than any other economic factor -tends to destabilise governments. Sunak is keeping his fingers crossed that he has done enough in the short term. Some Conservative MPs are not so sure. The OBR’s official forecast is that this year, real household disposable income per person – or living standards – will fall by more than at any time since reliable data was collected. His promotion shortly before the pandemic means that Sunak has endured a turbulent time as Chancellor. Arguably the biggest storms are still to come.

 

 

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Balancing the health of the nation with the health of the economy – 10 key takeaways

On 15th October WA hosted an event exploring the difficult decisions facing government in balancing the health of the nation with the health of the economy.

With a second wave of Covid-19 upon the UK and much of Europe, political, media and public pressure is building, and a difficult winter is approaching.

We brought together an expert panel to consider the issues, hosted by WA Director Caroline Gordon. The speakers included Tom Newton Dunn (Chief Political Commentator and Presenter at Times Radio), Poppy Trowbridge (former Special Adviser to the Chancellor and WA Advisory Board Member) and Dr Jonathan Pearson-Stuttard (Epidemiologist at Imperial College London).

It was a wide-ranging debate (watch here if you missed it), but what were the key takeaways?

Here are our top 10 points made during the discussion:

 

1) The prosperity of a nation is inextricably linked to the health of a nation:

The pandemic has taught us the value of public health cannot be underestimated. A legacy of Covid-19 must be a proper review of how we approach public health and what we ask of the NHS.

 

2) Devolved and regional politics has grown in power:

With healthcare devolved to national governments and Metro Mayors exercising influence over local lockdowns, leadership over the pandemic has often come from politicians not based in Westminster. What will this mean for the Government’s agenda beyond Covid-19?

 

3) Government is still stuck in campaign mode and not thinking long term

It’s no great surprise that a government of campaigners would think in campaign terms, but their focus has been too short term and the messaging too ambitious. With the pandemic creating complicated and long-term challenges they need to find a more nuanced way of communicating.

 

4) The libertarian principles of the Government are holding it back from decisive action

The restrictions being introduced to manage the spread of the virus are unprecedented for any democratic government, but they particularly jar with the PM’s brand of libertarianism. That conflict, manifested in hesitation and delays about enacting measures, has surfaced repeatedly through the crisis.

 

5) No 10 and No 11 have been closely aligned, but that could be fraying

There has often been tensions between the inhabitants of No 10 and No 11 Downing Street, but in Boris Johnson and Rishi Sunak there has been unusual harmony up to now. That consensus, however, is coming under strain with the Treasury keen to focus on keeping the economy moving and resistant to overly restrictive measures. How this relationship plays out could come to define the rest of this government’s term, particularly with the Chancellor being tipped as the most likely successor to the PM.

 

6) Internally government realise ‘Test & Trace’ is not working

With no clear vaccine timetable or even the promise that one will work, NHS Test and Trace is the only route back to a degree of normality. A fully functional test and trace system was the only reason SAGE agreed to the unlock over the Summer, but the Government’s centralised approach has been beset by problems. Whilst they have not publicly admitted it, quietly they are beginning to shift people and resources towards local test and trace approach which has been much more effective.

 

7) The government could do a lot more to help businesses navigate the crisis

Government offloaded too much responsibility onto businesses and were not clear about how long restrictions were likely to be in place. This uncertainty has meant businesses can’t plan effectively and many have taken an understandably cautious approach because of this. With unemployment rising, the Government needs to find a way to give business the confidence to invest and create jobs.

 

8) The public consensus is fragile compared to the first wave

People feel ‘cheated’ by being ask to lockdown again – they were willing to trust the process first time around, but a lack of faith in the government a second time around (not helped by the Dominic Cummings affair) could undermine the effectiveness of measures for the second wave.

 

9) England and Wales has one of the worst excess death tolls in Europe

Dr Jonathan Pearson-Stuttard’s research has shown that excess deaths in England and Wales were 37% above normal, second only to Spain’s 38% as the worst performance in Europe. When the public inquiry into the handling of Covid-19 finally comes, there will surely be questions to answer.

 

10) The Government’s long-term ambitions are on hold

It may not feel like it, but we are still in the early days of this Government. Elected back in December 2019 with a strong majority, the crisis has put the brakes on the broader policy agenda as they battle to tackle the virus and shore up an unstable party. The Government is a long way from making strides on its domestic agenda, businesses need to try to understand what each Department is trying to achieve despite the virus and bring solutions and opportunities for good news.

 

These are just a handful of takeaways from a wide-ranging and fascinating discussion, you call watch the full video exploring how to balance the health of the nation with the health of the economy here.

 

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The Winter Economy Plan explained

Chancellor Rishi Sunak has this afternoon delivered his Winter Economy Plan to the House of Commons.

In response to the recent rise in Covid-19 cases and the introduction of new restrictions expected to last for the next six months, the Chancellor cancelled the planned autumn Budget and instead made a short statement on the government’s immediate plans to support jobs and the wider economy over the winter. Before the statement was delivered in Parliament, Sunak was pictured outside No. 11 with the heads of the CBI and the TUC, signalling this was a set of measures that had the endorsement of both businesses and workers.

The decision to cancel the Budget, which would have included details of the government’s long-term fiscal recovery plan, was only made over the last few days. Today’s announcement reflects a recognition that the potential impact of a second wave of Covid-19 has made longer-term economic planning difficult and the government needs to take a flexible approach to the economic challenges ahead. The government has today taken the opportunity to act quickly to prevent a sudden increase in unemployment following the end of the furlough scheme in October and instead allow for a more manageable increase in unemployment.

Officially the government is still aiming to publish a multiyear spending review before the end of the year that would set out departmental budgets until 2024. However, a more likely scenario given the economic uncertainty is for the government to publish a one-year settlement to allow departments to plan for 2021/22. It is expected that the next full Budget will take place before the next fiscal year, likely in March 2021.

The main elements of the Chancellor’s Winter Economy Plan are:

The expected value of the package announced is around £5 billion, leaving the government with more firepower to support the economy should Covid-19 restrictions become more severe. Anneliese Dodds, the Shadow Chancellor, said it was “a relief” government had U-turned on the need for more support for workers but criticised the government for not acting soon enough. Paul Johnson, Director of the Institute for Fiscal Studies, has also warned that the limits of the new Job Support Scheme mean that the UK will see a large rise in unemployment over the winter.

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Webinar – Balancing the health of the nation with the health of the economy

On Thursday 15th October 2020, WA Communications Director, Caroline Gordon, hosted a webinar exploring how the Government can balance the health of the nation with the health of the economy.

We are living through unprecedented times in which a devastating public health crisis is creating a global economic slowdown.

The Government has to make daily decisions that balance the health of the nation against the health of our economy. Political, media and public pressure is building and a difficult winter is approaching. There are no easy answers – just more questions facing every business and organisation in the UK as to how to respond, plan and communicate.

Panellists included:

 

Watch a recording of the webinar:

 

 

 

 

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