On Wednesday, as Chancellor of the Treasury, Sunak’s big decisions on the future of the economy will be described in an overall update, designed to kick-start the recovery as lock controls are gradually relaxed.
To date, the Chancellor is considered in Westminster to have had a “good crisis” after his rapid rise, adding to his status as a new conservative star while freeing spending sets of several billion pounds including the Labor occupiers of # 11 would have been proud to call theirs.
Sent to homes across the country at the start of the emergency in March, and promising to do “whatever it takes” to cushion the economic fallout from Covid-19, Sunak played a pivotal role in the government’s response and became a household name in the process. Weakening the Treasury’s usual reputation for fiscal correctness, its interventions have injected up to £ 130 billion into emergency plans.
“I always said of the Treasury that we were the Millwall [football club] ministries: everyone hated us and we don’t care. But they are considered to have worked well during the Covid crisis, “said Gus O’Donnell, former chief of public service for David Cameron, Gordon Brown and Tony Blair, last week.
Saying that the Chancellor probably had more public confidence than many of his cabinet colleagues, O’Donnell said at an online event hosted by the think tank Institute for Fiscal Studies: “It will be put to the test then that we are entering a period of very rapid growth. unemployment. ”
Job losses are already starting to soar as Britain falls into the deepest recession in living memory, while the darkest forecasts by the Bank of England forecast unemployment to 9% – double the level before Covid strikes. Three former chancellors – George Osborne, Philip Hammond and Alistair Darling – warned Sunak that he had to prepare for the unemployment levels of the 1980s.
In this context, Sunak is nevertheless preparing to put an end to the biggest economic intervention of the Treasury – the leave scheme, which proposes to pay companies up to 80% of workers’ wages – by the end of October.
Torsten Bell, director of the Resolution Foundation thinktank, who was a treasury advisor under the last Labor government, said the chancellor’s job would be to fill the gaps in Wednesday’s update.
With lockdown restrictions eased as Britain enters a new phase of the Covid-19 crisis, Bell says questions are mounting about the government’s response. “So far the answer is not enough – in particular, not enough on jobs and not enough to recognize the sector-specific nature of this crisis, given the deep and lasting impacts on the hotel and leisure industries . ”
Rather than continuing the leave program or providing support to businesses in specific sectors, Sunak is expected to help ease restrictions during a pandemic and reopen businesses as the best way to help kick-start the economy. .
There are positive signals that the strategy could work. Last week, Andy Haldane, chief economist at the Bank of England, hailed the UK’s economic recovery as being faster than expected so far. “We are in the early days, but my reading of the evidence is for the moment, so V,” he said last week, referring to the form that rapid rebounds in economic activity take when they are plotted on a graph.
Building confidence rather than splashing tax and spending pledges could therefore prove the theme of the Chancellor’s economic update, observers say – an extension of Boris Johnson’s “new deal” speech last week, who was trying to send a cheerful message over a short distance.
Prime Minister said austerity will not be on the agenda, while Sunak is expected to announce plans this week to support jobs and growth to ensure that Johnson’s promised “opportunity guarantee” to all young people, becomes more than just a resonance.
So far, some MEPs have been alarmed by the cost of the leave scheme: the price is expected to reach £ 60 billion. They believe that the program is not sustainable and only serves to preserve many jobs that should not exist after the crisis. They indicate that the government’s budget deficit is expected to reach £ 300 billion this year: such a figure would far exceed the deficit recorded during the 2008 financial crisis. Public debt – the sum total of each budget deficit in history – already worth more than the current size of the economy, reaching more than 100% of GDP for the first time since 1963.
But while some Conservative MPs are pressuring the Chancellor to provide a road map to deal with the debt, borrowing costs are currently so low that even doubling the government’s debt would mean paying less interest. almost any time since 1950.
Rupert Harrison, fund manager at BlackRock, who was George Osborne’s chief economic advisor, says it is best not to tackle rising borrowing during the early stages of the Covid-19 crisis. “The focus should be on supporting demand. We still haven’t seen the worst of unemployment; we are not yet in the recovery phase, ”he says.
Sunak could, however, signal his intention to tackle the debt mountain once the recovery is firmly underway – giving it political cover for future tax hikes or spending cuts, adds Harrison. “At some point in the future, when a recovery is underway, attention should turn to how we will stabilize the debt-to-GDP ratio. ”
Far from a successful summer budget for Britain to get back to work – in a wave of “build, build, build” spending pledges – Sunak’s economic update has been downplayed by government sources as a more discreet affair.
The Chancellor is thought to prefer a “wait and see” approach to how the economy reacts to the lifting of the foreclosure, before using the fall budget as the main event for any radical change in Treasury policy.
Unions, business groups and activists warned that such caution could be costly and called on Sunak to take swift action this week to avoid an economic disaster. Cutting support too soon could stifle a recovery, while the risk of a second wave of Covid-19 infections remains.
If job losses increase dramatically as state support is cut, the Sunak star could wane as quickly as it has increased.
“What they were trying to do was build these bridges across the station. And so far so good, “said Karen Ward, a former advisor to Philip Hammond during his tenure as chancellor, who is now chief market strategist at JP Morgan Asset Management. “But what I’m looking for is to be sure that these bridges are going well on the other side. I have never seen a bridge that has worked three-quarters of its way. “