Britain is in the middle of an unprecedented crisis but some things never change. On the day after a budget or mini budget the chancellor of the exchequer can expect to have what he considers a flawless package picked apart by the Institute for Fiscal Studies.
Rishi Sunak’s summer statement was not accompanied by new forecasts for the economy and the public finances but there was still plenty for the think tank that specialises in all things to do with tax, spending and budget deficits to get its teeth into.
The IFS had five key things to say. First, the scale of the support provided by the state this year has been unprecedented. At the time of his budget in March, Sunak announced £12bn of measures in response to the Covid-19 pandemic. That has now risen to £190bn. Factor in the loss of tax revenue and the budget deficit this year is heading for £150bn.
Second, the deficit could well be higher than that because the chancellor will probably need to come back with extra support in his autumn budget. The IFS thinks next year’s deficit will be around £150bn.
Third, Sunak’s replacement for the furlough scheme – the Job Retention Bonus – is unlikely to save that many jobs and will result in a lot of money wasted on workers who would have been kept on by their employers anyway.
Fourth, the IFS has its doubts about the timing and the duration of the temporary cuts in stamp duty and VAT. It is unclear, according to the thinktank, whether hospitality businesses are being affected by weak demand – in which case a VAT cut will help – or by social distancing, in which case it won’t. The economy could be still be struggling when the tax holidays end in early 2021, it added.
Finally, it estimates there will eventually need to be spending cuts or (more likely) tax increases amounting to £35bn to £40bn to complete the repair job on the public finances. The good news for Sunak is that there is no need to do so this year or next. The bad news is that when he does get round to tightening policy the next election will be drawing ever closer.