A bigger Budget by far

Consider, first of all, the sheer scale of what Sunak announced. Six days ago, he unveiled a £12bn fiscal stimulus – coordinated with the Bank of England’s interest rate cut – to shore up the economy against the coming storm of Covid-19.

Today, he promised a package of guarantees worth no less than £330bn; which is to say, 15 per cent of GDP, or 27.5 times the amount he pledged in the Budget (also outstripping the €300bn announced by the French government, and the €200bn rescue package promised in Spain). How long ago that Budget speech now seems. At the time, it felt like a pivotal political moment: the day the Tory Party ditched fiscal conservatism in favour of huge spending and borrowing.

Yet last week’s apparent bonanza was, it turns out, no more than the new Number 11 clearing its throat.

Just as Johnson has, quite suddenly, ditched his softly-softly strategy to deal with coronavirus and replaced it with a much stricter suite of demands upon businesses, the NHS, social care and every citizen, so Sunak has now embraced a fiscal prodigality of the sort that, as the PM noted, one normally associates with “wartime government”.

Last week, Sunak’s slogan was “getting it done”. Today, he culturally appropriated, in full, the language deployed by the former Labour prime minister Gordon Brown after the Crash, promising repeatedly to do “whatever it takes”.

This choice of language will not have been accidental: economically, Johnson and his gang are deep in what amounts to terra incognita, especially for Tories of their generation, raised to prize financial prudence above almost everything else. But they are also back in their political comfort zone, campaigning and choreographing every step they take.

There is, it should be said, much to admire in the specifics that Sunak announced:

• Loans for businesses. “Low cost, easily accessible commercial paper” from the Bank of England, supplemented by the extension of the business interruption loan scheme for small- and medium-sized businesses to provide “£5 million with no interest due for the first six months”.
• Cash grants. Up to £25,000 to smaller businesses in the retail, hospitality and leisure sectors with a rateable value less than £51,000.
• Business rates holidays. Extended to all businesses in these sectors.
• Three-month mortgage holidays. Special dispensation for those facing difficulty because of the virus.

But there were conspicuous gaps. Many businesses will need cash, not more debt, to stay solvent. The grant level of £25,000 seems on the low side compared to the package as whole. The implicit assumption that the crisis will be over in three months may prove to be wildly optimistic (it was interesting to see how both Sir Patrick Vallance, the government’s chief scientific adviser, and Sir Simon Stevens, chief executive of NHS England, hedged their bets on the likely duration of the pandemic, when giving evidence to the Commons Health and Social Care Committee this afternoon).

The weakest joist by far of Sunak’s structure so far is his strategy for the self-employed, for renters, and for those dependent upon the gig economy. He had much less to say about household finance and those dependent upon benefits than he did about businesses.

This was a mistake of tone and emotional intelligence: 20 per cent of people in the UK live in the private rental sector. More than 4.9 million workers are self-employed. According to the ONS, there are more than 890,000 employees on zero-hour contracts in the UK. There was little to reassure them in today’s statement.

That said, Sunak was unambiguous that help is indeed coming for such workers, once he has completed his present negotiations with employers and the unions. This was evidently just the start. There are few certainties in the present constellation of economics, public health, and politics – but one is that the Chancellor will be back to deliver what amounts to his third Budget before you know it.