Columnist
John Campbell Economics & Business Editor, BBC Northern Ireland
Kick start the economy BBC NI’s Economic & Business Editor, John Campbell, discusses the budget plans post-COVID.
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he last few weeks have been a tale of two budgets: one, which will hopefully drive an economic recovery and one, which probably can’t. The hope lies with the Westminster budget, the pessimism at Stormont. Rishi Sunak’s budget has been characterised as ‘spend now, tax later’ and certainly the spending taps stay open through to the autumn and beyond. There is around £70bn in additional fiscal support for the economy over the next two years with a significant chunk of that devoted to the crisis measures which have supported businesses and households through the pandemic. Taking the furlough scheme and the self-employed support grant all the way out until the end of September will help keep a floor under the labour market. But I think we can discern that the Treasury expects that virtually all businesses will be reopened to some extent by July. That is the point at which employers will have to start making a 10% contribution towards the hours their furloughed staff do not work, increasing to 20% in August and September. It stands to reason that if you are expecting employers to do this then you will also have allowed them to open their doors and start earning revenue again. This may also make moot the discussion about the lack of dates in the Stormont reopening plan. It is going to be hard for any of the devolved administrations to significantly diverge from London’s reopening timetable when the phase out of the furlough is being decided by the Treasury. Once the furlough and related schemes end there is not much by way of lasting support for households and this looks like the biggest calculated gamble of the budget. The bet is that wealthier households, which have been accumulating savings during the pandemic, go on a spending spree, which will support jobs across the wider economy. For
example Danske Bank says that their customer deposits have increased by £2bn in the past 12 months, something the bank has not seen in its 200-year history. So the Chancellor’s expectation is that people will need little prompting to spend some of that on clothes, meals, cars and weekend breaks. When it comes to spending by business the budget has a much more active policy. The planned rise in corporation tax got most of the headlines but it’s the two-year capital allowances bonanza where the action is for now. Essentially the Chancellor is telling companies ‘this is a once in a lifetime opportunity to get a massive tax advantage by investing in new plant and equipment so if you have the cash now is the time to spend it.’ Underinvestment has been a chronic problem not just here but across the whole of the UK so perhaps this will be a decisive shove with long-term productivity benefits as well as short-term stimulus. With Stormont’s budget for the next financial year stimulus is in short supply. The Finance Minister Conor Murphy certainly did not raise expectations when he published the draft budget in January. ‘It is difficult and effectively a standstill of our 2020-21 budget
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