Chancellor Rishi Sunak announced a reversal of fiscal austerity in this week’s Budget, promising what he called “the largest sustained fiscal boost for 30 years.”
Although he announced measures to help combat the economic damage caused by Covid-19 such as cuts in business rates and support for smaller companies’ sick pay bills, his plans to raise spending extend well beyond the likely duration of the virus. He envisages overall government spending being £48.8bn higher in 2023-24 than predicted last year, with taxes rising by only £7.6bn mostly as a result of scrapping planned cuts to corporation tax. That’s a fiscal easing of £41.2bn, equivalent to 1.5 per cent of GDP then.
Another measure of the fiscal stance is cyclically adjusted net borrowing. The OBR envisages this rising from 2.2 per cent of GDP last year to 2.4 per cent this year and three per cent in 2021-22. This suggests the biggest fiscal loosening will come not during the impact of Covid-19 but this time next year.