Sunak will announce on Wednesday that emergency support measures for workers and businesses are being extended, while arguing that public finances will need to be repaired as soon as the rapid launch of the vaccine in the country alleviates the economic problems caused by the pandemic. of the coronavirus.
The UK government has lent large sums of money to finance nearly £ 300 billion ($ 419 billion) in fiscal stimulus over the past 12 months. Total government debt has skyrocketed to £ 2 trillion ($ 2.8 trillion), or close to 100% of GDP, a level not seen since the 1960s, according to the Office for National Statistics.
“We are using all of our fiscal firepower to protect the jobs and livelihoods of the British people,” Sunak will say, according to excerpts from his speech released by the Treasury. “As soon as we are on the road to recovery, we will need to start fixing public finances – and I want to be honest today about our plans to do that.”
UK GDP fell by almost 10% over 2020, returning the economy close to the size of 2013. An ongoing national blockade imposed on 5 January is expected to hit the economy hard in the first quarter of 2021, while the EU hurts trade UK after the Brexit transition period on December 31 is also weighing on activity.
Although Sunak is not expected to announce immediate plans on Wednesday to curb spending, tax increases may be expected to fund additional stimulus measures that cost billions of pounds, including a third extension to the government’s employment support program and plans to maintain social welfare payments. at the place.
Sunak will pledge to continue subsidizing workers’ wages on leave until September, with companies being asked to contribute to costs starting in July, according to a statement from the Treasury. The pandemic has already eliminated more than 700,000 jobs and left about 4.7 million people depending on the state to pay most of their wages, government data show.
Sunak, who took over the Treasury just a few weeks before the UK’s coronavirus crisis exploded last March, will also set out plans to channel £ 5 billion ($ 7 billion) into “restart subsidies” for more than 600,000 companies in the hospitality industry, worth up to £ 18,000 ($ 25,000) each, he told Sky broadcaster on Sunday.
According to several media reports, Sunak may announce an increase in corporate tax to help restore government finances.
At 19%, Britain’s corporate tax rate is the lowest in the G7 and one of the lowest among OECD countries. Even if it were increased to 25%, companies in the UK would still face a lower tax rate than in most other large economies.
But a major tightening in fiscal policy, driven mainly by higher taxes, could put the economic recovery on “unstable ground,” wrote Capital Economics senior economist Ruth Gregory in a research note last week.
“The risk is that in the next two years [Sunak] will be tempted to pull the rug under the feet of families and businesses, reducing the budget deficit at a faster rate than currently programmed, “said Gregory.” This would not only hamper the economic recovery, but could also cause more problems for public finances than it solves, ”he added.