TODAY’S announcement of £30 billion of measures in support of the economy follow on from previous announcements of £158.7bn of direct fiscal spending and support along with £122.8bn of tax deferrals and loan support taking the direct cost of Covid-19 interventions to £311.5bn.
However it is important to distinguish between “life support” measures to protect jobs and livelihoods as the economy collapsed from stimulus to get the economy moving again and investment to ensure it is rebuilt and restructured sustainably. Thus far the Chancellor’s work has been on softening the blow.
Today’s announcements were largely more of that including an attempted landing for the end of the furlough scheme that looks reasonably hard to me.
Given that so many businesses require to stay closed as a result of government policy it is difficult to understand why this scheme is not being extended for some and why more flexibility is not being shown.
The VAT reduction for hospitality will be very welcome and could stimulate demand but at £4.1bn it is a fraction of the blanket VAT cut introduced by Alistair Darling in response to the global financial crisis.
The funding for infrastructure, housing decarbonisation and green homes is something. But, at £8.7bn, not that much.
My core concern remains that very significant amounts of capital remain available at very low prices for the Government to borrow and reinvest. This funding may not be available forever given the level of take-up globally by countries and companies.
The forward-looking stimulus and investment measures therefore look to us to be a – albeit welcome – drop in the ocean of what will be required. The UK economy is already in recession having contracted in the first quarter and fallen off a cliff in the second.
The first quarter wasn’t all Covid. This economy was already stuttering having failed to grow at all in 2019’s last quarter. The Organisation for Economic Co-operation and Development (OECD) predicts that the UK’s economy will take the biggest hit in 2020 in the industrialised world. And that is before 2021 opens with an exit from the European single market on terms that remain to be seen.
I think that a monumental policy intervention is required. While £311.5bn so far looks very substantial indeed – and of course it is – stimulus and investment way beyond that amount is now required.
Kate Forbes called for a stimulus package of £80bn. That would be more like it. But even that would
fall short of the intervention that seems to me is now required. For Scotland alone tens of billions of investment capital is needed, and urgently.
Just as the First Minister has tailored her response to the health crisis so we need to tailor our response to the economic one. There is much to be optimistic about in the long-term future for Scotland’s economy but it needs strategic support urgently.
Opinion polls are showing real movement in support for independence with 63% of those 55 and under now in favour. With the self-harm of a badly done Brexit set to follow the intergenerational hurt of Covid, the imperative of getting the same tools as every other successful small economy and society could not be clearer.
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