Rollercoaster ride: UK Budget a blueprint to tackle biggest decline in 300 years

Mar 9, 2021

UK Chancellor Rishi Sunak’s Budget speech veered from generosity to menace, from sobriety to hyperbole, from statesmanlike caution to political recklessness. It was a masterclass in presentation from the government’s best communicator.

With 124,000 deaths from Covid 19 – the third highest in the world after Belgium and Czechia (formerly Czech Republic) – Britain has suffered its biggest economic decline in more than 300 years and racked up public debt amounting to 97% of national income. The Johnson government laid out $A630 billion in fiscal support for the economy during the pandemic.

Given such staggering figures for the world’s sixth largest economy and, like Australia, an active member of the 24-strong OECD, it is hardly surprising that the eyes of policymakers across the globe were focused this week on UK Chancellor of the Exchequer Rishi Sunak’s Budget.

What would be the recovery model for a country blighted by the coronavirus and still in lockdown, with export income further shrunk by Brexit? Surely Sunak, a former investment banker who is less than two years into his first ministerial job, would take the advice of one of his predecessors, Denis Healey: “If you are in a hole, stop digging.”

But on March 3, Sunak ignored this dictum and produced more than 100 measures – some familiar, others highly radical – all designed to transform a society, stricken by plague and the self-inflicted harm of the UK’s exit from the European Union, into what the chancellor promised would be “a scientific superpower”.

For the elderly among us, death and certainly higher taxes will come before the arrival of this promised land.

The costs involved in supporting British families and businesses during the pandemic are expected to blow out to $A730 billion, the largest bailout in British history; on Tuesday Sunak earmarked another $A108 billion to be spent in coming months. Faced with the prospect of many employers shedding staff if the furlough scheme (under which furloughed employees get 80 per cent of their pay) was terminated, Sunak decided he had no choice but to extend it for six months. He also provided extra support for the self-employed. In the past year, more than 700,000 jobs were lost and the economy shrank by 10 per cent, the biggest fall in 300 years.

After half a century of reporting geopolitics and economics across the OECD, I cannot recall a Budget quite like this one, in terms of content, numbers or delivery. It veered from generosity to menace, from sobriety to hyperbole, from statesmanlike caution to political recklessness; it was ladled with pathos and bathos, bald facts and quotes from Tennyson. In short, a masterclass in presentation from the government’s best communicator.

In one crowded hour, we were riveted as Sunak extended to September what were already Europe’s – and probably the world’s – most generous pandemic support packages, giving support to companies and individuals for three months beyond June, when Britain’s current lockdown restrictions are expected to be lifted and the vast majority of adults vaccinated. Then came the bad news. In 2023, Britons will face their highest tax bill for 50 years. By then, it is calculated, measures to ‘level up’ the economy will be kicking in.

Sunak was in overdrive, the superlatives flowing freely, as he announced a set of new policies “on a scale not seen before”. They include:

  • Making the UK the ‘best place in the world’ for high growth, innovative companies. “Becoming a scientific superpower is something we can be; I don’t think that’s hubristic or unrealistic,” he said.
  • A new unsponsored points-based visa to attract the best and most promising international talent in science, research, tech and entrepreneurship.
  • Updating research and development tax reliefs and incentives to attract foreign investment.
  • Unlocking billions of pounds from pension funds into innovative new ventures, and reducing regulation to make the City of London more competitive.
  • Creating eight low-tax, low-tariff free ports around the country, and new high growth zones in Scotland, Wales and Northern Ireland.
  • Moving thousands of public servants out of London to ‘Treasury North’, an economic campus to be established in the northern city of Darlington, set to be a financial hub. “If we are to level up, we must start with the institutions of power,” says Sunak.
  • Pledging $A22 billion to establish a UK Infrastructure Investment Bank, targeting green projects, especially offshore wind farms.

In what was the most emotional part of his speech, Sunak described what these changes could mean to families in areas hardest hit by the loss of declining industries, using Teeside as his example.

In the past, Teeside’s prosperity was based on heavy industries such as steel. The chancellor expressed his vision: “I see old industrial sites being used to capture and store carbon. Vaccines being manufactured. Offshore wind turbines creating clean energy for the rest of the country. All located within a Freeport with the Treasury just down the road, and the UK Infrastructure Bank only an hour away.

“I see innovative, fast-growing businesses hiring local people into decent, well-paid, green jobs. I see people designing, manufacturing and exporting incredible new products and services. I see people putting down roots in places they are proud to call home. I see a people optimistic and ambitious for their future. That is the future economy of this country.”

It is an interesting, and, in many ways, exciting blueprint. Had Britain not opted for Brexit, and stayed within the vast European Single Market, the export opportunities for the products of a competitive high-tech and scientific superpower with Green credentials would have been good. But at the same time, EU membership would have prevented Sunak from introducing new incentives, freeports, and various forms of deregulation.

Boris Johnson’s dream of Global Britain may beckon, but it will be many years before the UK economy will recover its losses from Brexit.  Within five years, an additional one million people will fall into the 40% tax bracket, but even that may not be sufficient to draw down record levels of government debt.

While there are differences between the UK and Australia demographically and in economic structure, there are policy changes in Sunak’s Budget that could benefit our country. Certainly an Australian Infrastructure Investment Bank modelled on the British announcement would provide a valuable alternative to savers sick of the poor investment returns offered by Australia’s banks. Kickstarted by Treasury, it would lead the way in drawing in billions of dollars of new investment in huge onshore and offshore green energy projects capitalising on our climate. With President Joe Biden and other world leaders meeting next month to unite behind a call to end government subsidies to fossil fuel production, establishing such a bank would be a sensible move.

Another Sunak plan worth investigating is ‘super tax relief’ of 125 or even 150 per cent for large sums invested in projects of ‘high national benefit’. This could work to rapidly expand production and export of rare earths, where Australia is now seen as an attractive alternative to China in the supply chain in the production of electric cars, boats and, ultimately, planes.

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