UK Edition
Rishi Sunak unleashes biggest spending spree since Norman Lamont in 1992
The Chancellor vowed to protect the UK economy against the spreading coronavirus outbreak
Rishi Sunak's spending spree is the biggest loosening of the purse strings since Norman Lamont’s pre-election giveaway Budget of 1992, the Office for Budget Responsibility said.
The new Chancellor will entirely unwind the spending restraint of the coalition era by ramping up spending over the next five years.
Almost 500,000 extra workers will join the Government payroll under his plans with spending due to rise to more than £1 trillion pounds in 2022-23 for the first time ever.
But instead of cutting taxes in the traditional Conservative manner, Mr Sunak is hiking spending, borrowing and - to a lesser extent - taxes with promises to ramp up investment in infrastructure and the health system.
He began with an £18bn rise in spending, before adding another £12bn in anti-coronavirus measures aimed at containing the infection and battling its economic effects.
Compared with previous forecasts he is adding an extra £125bn to the national debt over five years.
It will take the total to more than £2 trillion in 2024-25.
Despite this, the huge increase in spending does not break the new fiscal rules - for the moment.
Paul Dales, chief UK economist at Capital Economics, said the “austerity of the past decade is out and more government spending and investment is in”.
But he added that the current fiscal rules - which give the Chancellor £11.7bn of headroom by 2022-3 - would almost certainly be broken when forecasts were updated to take account of the coronavirus: “As and when they do, we estimate that the surplus will vanish leaving Sunak perilously close to breaking the fiscal rules. That’s probably why he pledged to review the rules in the autumn.”
Economists praised the effort to fight the coronavirus-induced slump.
The spending hikes combined with interest rate cuts from the Bank of England “will not prevent GDP from falling over the next couple of months, but they greatly improve the chance that the economy rebounds later this year”, said Samuel Tombs at Pantheon Macroeconomics.
“The UK’s joint policy response so far has been more aggressive than in other advanced economies, and both the Treasury and the Bank of England have scope to do more if the circumstances require.”
Economist Philip Shaw at Investec said: “We cannot be confident that the recovery will be ‘V-shaped’, ‘U-shaped’ or even ‘L-shaped’. Our instinct is to say that after a difficult few months, today’s measures help the case to expect the first scenario. In any case there is further scope for both fiscal and monetary measures if required."