ALEX BRUMMER: The country cannot go on borrowing unchecked forever, but now is not the time to slam on the brakes, so Chancellor must hold his fire
The latest data for public borrowing tells us why Rishi Sunak can afford to sit on his hands and hold back on tax rises when he delivers his March 3 Budget.
Since Covid arrived a year ago, the Chancellor has delivered a record breaking 15 financial statements.
Almost all of these appearances have been to unveil support measures or giveaways. It is as if traditional Tory values of budget discipline no longer count.
Planning ahead: Rishi Sunak needs to put some zip behind recovery and resist efforts to make early repairs to the tax base
One government appointee, departing Children’s Commissioner Anne Longfield, took to the airwaves this week to suggest an extra £10billion be allocated to kids to help with Covid stresses. No one batted an eyelid.
Much will be made of the fact that borrowing in January at £8.8billion is a record for the first month of the year, when there is normally a surplus as self-assessment tax payments roll in.
The actual number is a shade under one-third of the £24billion which most analysts had projected. Most of the deficit is down to spending decisions with last month’s outlays 31.7 per cent up at £81.9billion. The furlough scheme cost £4.2billion in January.
It is now looking as if the Office for Budget Responsibility (OBR) may have overdone the gloom. Borrowing at £270.6billion in the first ten months of 2020-21 points to an undershoot of the £394billion projected by the OBR. The monthly data takes no account of the guarantee made for the Covid-loan schemes, with estimated losses of up to £30billion.
As the Treasury makes its final budget decisions, it should be buoyed by the fact that, for all the damage Covid has done to the High Street, education, hospitality and business confidence, tax receipts are holding up. At £80.3billion in January, revenues are just 1 per cent down on last year. Income and wealth tax receipts were up and, unsurprisingly, VAT took a big hit.
The latest purchasing managers index shows a mild rebound in February, suggesting that the economy, particularly manufacturing, has learned to live with lockdowns much better than last year.
What Sunak needs to do is to put some zip behind recovery and resist efforts to make early repairs to the tax base. Rather than ‘eat out to help out’ trendiness, he should go for VAT cuts, support for the young unemployed, R&D tax breaks and hold off on the restoration of business rates.
The country cannot go on borrowing unchecked forever.
Oil and commodity prices on the rise and unprecedented monetary creation are sending global bond yields higher.
The risks to highly-borrowed Western governments of a surge in interest rate service charges is very real. But now is not the time to slam on the brakes.
Alison Rose at Natwest has brought back the dividend, repositioned the bank for the Covid era and made a tough decision about a withdrawal of Ulster Bank from Ireland. The bank has more capital than it knows what to do with and has seen a vast jump of £62.5billion in ready-to-spend customer deposits. Rose has reshaped the bank, including its trading operations. It is high time that the Government sold down its 62 per cent stake.
Returning the share price to a level where politicians can declare a profits victory will be tricky in the current low interest rate environment. The spectre of part-government ownership may well have contributed to Natwest becoming a better corporate citizen with its focus on green bonds, lending to entrepreneurs and moderating executive pay packages.
But it is time, for the sake of minority investors, that this behemoth was returned fully to the public markets where it belongs.
As someone with a son and daughter-in-law working and living in Austin, Texas, it has been hard not to become fixated on snow storms and their impact on utilities in America’s most important energy state.
Early reports blamed frozen wind farms and impotent solar energy facilities for the loss of power. Nobel-prize winning economist Paul Krugman, writing in the New York Times, has declared this to be Republican false news.
It has since emerged that the weather closed down West Texas’s biggest oil refineries and some natural gas pipelines.
As a consequence, almost 40 of US oil production has been interrupted.
The family has discovered the magic of candlelight, gas fires and hobs. Home working on laptops with flat batteries is trickier.