British Chancellor of the Exchequer Rishi Sunak on Wednesday announced £30 billion (US$37.9 billion) of tax cuts and extra spending to support the UK as it emerges from the COVID-19 pandemic.
In a 30-minute speech, he reduced taxes for home buyers and the hospitality industry, and even offered Britons vouchers to cut the cost of eating out next month.
The measures are aimed at reviving confidence among consumers and industries still reeling from the lockdown after much of the UK economy reopened on Saturday last week.
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The success of Sunak’s package, and any prime ministerial ambitions he harbors, rests on one big uncertainty: Can British Prime Minister Boris Johnson’s government prevent a second wave of the virus that causes a second lockdown?
Another outbreak could prove devastating for an economy that shrank 25 percent in the two months to April.
“No amount of fiscal support can mask the fact that the UK recovery hinges almost solely on avoiding a return to repeated, widespread lockdowns,” ING developed markets economist James Smith said.
Even if the virus does not return, Sunak would need to confront the specter of mass unemployment.
Joblessness is expected to surge as he starts to unwind the unprecedented government programs that are funding the wages of more than 12 million workers.
He might need to provide more stimulus when he presents a new budget in the fall.
“These interventions will cost an extraordinary amount of money,” Sunak told the BBC on Thursday. “We are borrowing record sums this year to step in to provide support and protection for our economy. The cost of not acting in this way would be far greater in the long run. We can’t sustainably live like this, and over the medium term we can and will return our public finances to a sustainable position.”
The state has provided about £160 billion of direct support for the economy.
That figure now rises to almost £190 billion, putting the budget deficit on course to hit £350 billion in the current fiscal year, or a peacetime high of about 17 percent of GDP, the Resolution Foundation think tank said.
Sunak put preserving jobs front-and-center of his speech, unveiling a £1,000 incentive for companies that retain previously furloughed workers until next year, and funding for firms to hire young apprentices.
With signs that job losses are mounting before employers take on more of the burden of paying furloughed workers next month, some economists were critical of Sunak for not doing more.
The main risk will be unwinding the furlough program before the recovery has taken hold, which could result in millions of jobs being axed, JPMorgan Chase & Co global market strategist Mike Bell said.
“Removing the furlough scheme before activity has recovered is like building three quarters of a bridge and not finishing it because it is becoming expensive,” he said.
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