Sunak will announce later on Wednesday that emergency response measures for workers and businesses will be expanded, and is calling for public finances to be restored once the rapid rollout of vaccines has eased the economic pain caused by the coronavirus pandemic.
The UK government has borrowed massive sums of money over the past 12 months to fund nearly £ 300 billion ($ 419 billion) in fiscal stimulus. Total government debt has risen to £ 2 trillion ($ 2.8 trillion), or nearly 100% of GDP, a level not seen since the 1960s, according to the Office for National Statistics.
“We are using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people,” Sunak said, according to excerpts from his speech released by the British. Treasury. “Once we are on the road to recovery, we will have to start restoring public finances – and I want to be honest today about our plans to do that.”
UK GDP fell by nearly 10% over the course of 2020, bringing the economy back close to 2013’s size. A sustained nationwide lockdown imposed on January 5 is expected to hit the economy hard in the first quarter of 2021, while disrupting the EU. Trade in the UK after the Brexit transition period on December 31st also weighs on activity.
While Sunak is not expected to announce immediate plans to curb spending on Wednesday, tax increases could be on the agenda to fund additional stimulus measures costing billions of pounds, including a third expansion of the government’s job support program and plans to improve. to maintain benefits in situ.
Sunak will pledge to continue subsidizing workers’ wages on leave until September, asking companies to contribute to the costs from July, according to a statement from the Treasury. The pandemic has already wiped out more than 700,000 jobs and around 4.7 million people depend on the state to pay most of their salaries, government data shows.
Sunak, who took charge of the treasury just weeks before the UK’s coronavirus crisis broke out in March, will also set out plans to channel £ 5 billion ($ 7 billion) in “reboot scholarships” to more than 600,000 companies in the United Kingdom. catering, valued at up to £ 18,000 ($ 25,000) each, he told broadcaster Sky on Sunday.
According to multiple media reports, Sunak could announce an increase in corporate tax to help restore public finances.
The UK corporate tax rate is the lowest in the G7 at 19% and one of the lowest in the OECD countries. Even if it were increased to 25%, businesses in the UK would still face a lower tax rate than those in most other major economies.
But severe fiscal tightening, driven mainly by higher taxes, could put the economic recovery on “shaky ground,” Capital Economics senior economist Ruth Gregory wrote in a research note last week.
“The risk is that for the next two years [Sunak] will be tempted to pull the carpet from under the feet of households and businesses by cutting the budget deficit faster than currently planned, “said Gregory.” Not only would that undermine the economic recovery, but it could also cause more. problems for public finances than it solves, ”she added.