Rishi Sunak has two get-out-of-jail-free cards

As he navigates the post-pandemic recovery, Rishi Sunak has a difficult job toeing the line between public sentiment and financial spreadsheets.

Many public groups and systems require urgent funding to maintain service, clear backlogs and even avoid bankruptcy. UK healthcare and social care need £10 billion each, while railways and the judicial system both need a couple of billion. That’s not to forget education requiring just short of £6 billion for students to catch up, and a UK government promise to pensioners that will cost £4 billion each year.  

These sorts of finances could be daunting to the UK Government, but they can afford it. The UK economy generates an estimated £2,300 billion per annum, allowing for such money to be spent in the aforementioned areas. Moreover, The Treasury has two further trump cards ready to play. It’s how they play them that matters.

Shelving sustainability

The first is that Sunak can commit to a hiatus on lower borrowing. He has been correct in reducing the unsustainable borrowing by the UK over recent decades, but this doesn’t have to be the case in the aftermath of a global pandemic. Bailing out public services should be the priority over the next 12 months before returning to a more sustainable approach.  

The UK Government serves to protect people from catastrophic events that would cause public services to fail. This will take priority over trying to achieve more sustainable debt within the COVID recovery period.

Sunak’s windfall

The Office for Budget Responsibility (OBR) is trimming its long-term forecasts of damage to public finances due to the pandemic. In a nutshell, the long-lasting economic damage of the pandemic is being revised by many groups as things appear to be somewhat better than expected.

The OBR is doing the same and does not want to become the outlier. This could result in Sunak having a windfall of around £25 billion. This would be enough to take care of some of the areas where public spending is essential – but not all.

The end results?

The Autumn announcement could see Sunak announce a range of new measures and fiscal changes. We may see a new social care reform propped up by a rise in income tax, or as being reported at the time of writing, an increase in National Insurance. It’s also possible that we see pensioners receive the increase promised in their state pension, and those on Universal Credit see their payments frozen at the higher amount currently in play.

It’s going to take a national effort to make the recovery period a success with contributions from all social classes. But it may also take some higher borrowing and a fortunate windfall to ease the blow.

September 2021