As evidence mounts of the economic destruction being wrought by the coronavirus pandemic, U.K. Chancellor of the Exchequer Rishi Sunak is examining ways to get consumers and businesses spending once again.
The economy shrank by a fifth in April, jobless claims have doubled to almost 3 million and the national debt is now above 100% of economic output for the first time since 1963 as the vast cost of government efforts to save jobs and livelihoods piles up.
But with the virus apparently in retreat and the lockdown in place since March gradually easing, Sunak is preparing to shift the focus to reviving the economy with the announcement of modest stimulus measures next month.
With ministers wanting more time to fully assess the damage before announcing commitments, the package won’t amount to a mini-budget, according to a person familiar with the plans. The initial stimulus is likely to be focused on infrastructure and jobs.
The calculation is that household and firms will be unable to take advantage of major tax and spending giveaways until the economy has returned to a semblance of normality. A full Budget due in the fall will provide an occasion for more sweeping stimulus. Here are some steps Sunak could take in the meantime:
Infrastructure
The ruling Conservatives pledged in their election manifesto to spend 100 billion pounds ($126 billion) on infrastructure over the next five years, and Sunak in his March budget announced 27 billion pounds of investment in roads and 5 billion pounds to get gigabit-capable broadband to hard-to-reach areas.
Accelerating that spending and bringing forward other projects that have been in the planning for years could help fire up the economy.
“There are a lot of infrastructure programs that have been on the books for donkey’s years and they are shovel-ready: get on with them,” Adam Marshall, director general of the British Chambers of Commerce, said in an interview.
Skills
With millions of people facing the specter of unemployment as government wage subsidies are withdrawn, training programs are needed to equip them with skills to work in the industries of the future, such as green energy and artificial intelligence. Industry groups are pushing for them.
Ben Fletcher, policy director at MakeUK, a manufacturing lobby, said large factory closures already provide a blueprint.
“When a big site loses several thousand jobs, there is a retraining program, usually the local further education college gets involved, the company gets involved, the local authority gets involved,” he said. “That is something really critical in the aftermath of the kind of redundancies we are already seeing.”
Capital Allowances
The financial hit inflicted by the lockdown means many companies may be saddled with more debt and reluctant to invest in new machinery. Sunak could encourage them to invest by increasing and extending capital allowances.
One program, the Annual Investment Allowance, applies to machinery and normally provides tax relief for the first 200,000 pounds of investment. A temporary two-year increase to 1 million pounds expires in January. Sunak could both increase the ceiling and extend the time period.
Such tax measures, though, may be something for the Budget later in the year. In March, Sunak increased a different annual allowance for companies, enabling them to claim relief for 3% of the cost of investment in non-residential buildings instead of 2%. The cost to the taxpayer is forecast to exceed 1 billion pounds in the coming five years.
Regulatory Easing
Sunak has already cut red tape for business to help them weather the pandemic, including reporting requirements on financial accounts, compliance with gender pay gap reporting, and checks on the right to work of immigrants.
“There’s been a lot of forbearance during the acute stages of the crisis; that can be extended,” said Marshall.
Mel Stride, a former Treasury minister who now chairs Parliament’s Treasury Committee, called on ministers to give businesses, particularly pubs, restaurants and retailers, “a shot in the arm by allowing them to use space outside of their premises.” It’s something the government is actively considering.
Business Rates
Sunak has already given shops and the hospitality industry a 12-month holiday during which they don’t have to pay business rates, a property-based levy that helps to fund local authorities. MakeUK says extending it to cash-constrained manufacturers would be “the single most important measure the chancellor could introduce,” delivering instant relief for companies of all sizes and across all sectors.
VAT Cut
A temporary cut in value added tax, a levy on sales, would be a measure straight out of Labour Chancellor Alistair Darling’s playbook during the financial crisis in 2008.
The rate for most goods is 20%, and the U.K. remains bound by European Union rules — setting a 15% floor — until the year-end, when a post-Brexit transition period ends. That still leaves scope for a cut this year.
Stride said if he were still at the Treasury, he’d be considering it. But he cautioned it can be a “blunt instrument” because there is no guarantee retailers would pass the cut on to consumers, or that crisis-traumatized consumers would spend rather than save the windfall.
The measure would also be expensive: The U.K. tax authority, HMRC, estimates every percentage point drop in VAT would cost the Treasury about 7 billion pounds a year.
Asked in a BBC interview on Sunday whether he might cut VAT, Sunak didn’t rule it out, while suggesting it’s an option for later.
“Before we have that conversation we need to actually reopen those sectors,” he said. “There’s no point cutting VAT on a sector which is actually closed.”
Green Stimulus
Prime Minister Boris Johnson has said he sees a “green” recovery as vital to restoring the economy, and Sunak in March pledged to create “the high skill, high wage, low carbon jobs of the future.” His announcements then included 500 million pounds for electric car-charging facilities and 800 million pounds for carbon capture and storage technology to trap greenhouse gas emissions and pump them underground for permanent storage.
Stimulus efforts could see both of those programs accelerated — including more specifics on the CCS funding, which needs to be apportioned to projects on the ground. The Conservative manifesto also included a 9.2 billion-pound commitment for energy efficiency projects in homes, schools and hospitals, which was absent from the Budget. Efforts to insulate buildings could create jobs, save energy and reduce emissions.
After Germany’s stimulus plan included a 9 billion-euro ($10 billion) bet on developing hydrogen as a clean fuel, the chancellor may be tempted to look at that technology too. The Tory manifesto and the 2020 budget documents both made fleeting references to its potential.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
