The UK risks tipping into recession if the coronavirus outbreak causes widespread disruption, the Budget watchdog warned as Chancellor Rishi Sunak announced a £30 billion spending package to support the economy.
In his first Budget, Mr Sunak turned on the spending taps as he acknowledged that “for a period it’s going to be tough” with up to a fifth of people off work, supply chains disrupted and consumer spending decreasing.
The Chancellor said there was “likely to be a temporary disruption” to the economy but insisted his plans would bring “stability and security”.
The scale of the challenge facing the economy was underlined by the Office for Budget Responsibility (OBR) in forecasts prepared before the full impact of the virus could be known.
The OBR said “a recession this year is quite possible if the spread of coronavirus causes widespread economic disruption”.
Growth is expected to fall to 1.1% in 2020, down from 1.2% last year and dramatically lower than the OBR’s previous estimate of 1.4% – even without the full impact of coronavirus being reflected in the forecast.
This Budget package looks like the largest planned sustained giveaway since Norman Lamont’s pre-election Budget in 1992 and modestly greater than Gordon Brown’s 2000 Budget.#Budget2020pic.twitter.com/3toU2VnpYG
— Office for Budget Responsibility (@OBR_UK) March 11, 2020
Faced with the crisis less than a month after becoming Chancellor, Mr Sunak set out a £12 billion set of measures targeted specifically at the impact of the virus, along with £18 billion of wider spending plans to stimulate the economy.
The Bank of England also announced an emergency cut in interest rates from 0.75% to 0.25% as part of a co-ordinated move with the Treasury.
Mr Sunak splashed out with funding for public services, citizens and businesses set to suffer as the outbreak becomes more widespread and restrictions on activities are imposed.
The Chancellor said: “Taken together, the extraordinary measures I have set out today represent £7 billion to support the self-employed, businesses and vulnerable people.
“To support the NHS and other public services, I am also setting aside a £5 billion emergency response fund – and will go further if necessary.”
Other plans represented another £18 billion of “additional fiscal loosening” and “that means I am announcing today, in total, a £30 billion fiscal stimulus to support British people, British jobs and British businesses through this moment”.
Measures announced included:
– A £1 billion business rates holiday in the coming year for retail, leisure and hospitality firms with a rateable value of under £51,000
– The Government fully meeting the cost of providing statutory sick pay for up to 14 days for workers in firms with up to 250 employees, providing over £2 billion for up to two million businesses
– Statutory sick pay available to all those advised to self-isolate, even if they have no symptoms, and sick notes available from NHS 111 rather than a GP
– Reforms to the benefits system to make it easier to access funds, providing a £500 million boost to the welfare system along with a £500 million hardship fund
– A new coronavirus business interruption loan scheme offering government guarantees to support banks lending £1 billion to small businesses
– A £3,000 cash grant to businesses eligible for small business rates relief
– A freeze on alcohol duty and a £5,000 business rates discount for pubs
Mr Sunak said he knew how worried people were, but he added: “What everyone needs to know is that we are doing everything we can to keep this country, and our people, healthy and financially secure.
“We will get through this – together. The British people may be worried, but they are not daunted.”
The OBR forecasts that to pay for the giveaways, national debt will hit two trillion pounds by the end of the Parliament as borrowing jumps from 2.1% of gross domestic product (GDP) in 2019-20 to 2.4% in 2020-21 and 2.8% in 2021-22.
— HM Treasury (@hmtreasury) March 11, 2020
Despite speculation that he would ditch the framework on spending set by predecessor Sajid Javid, Mr Sunak said that his Budget is delivered “not just within the fiscal rules of the manifesto but with room to spare”.
Over the next five years, the Government plans more than £600 billion in capital spending.
And day-to-day spending is also set to grow at an average of 2.8% as the Tories move away from austerity and attempt to shore up support among the former Labour voters who delivered Boris Johnson’s election victory in December.
By the end of the Parliament in 2024 day-to-day spending on public services will be £100 billion higher in cash terms than it is today, the Chancellor said.
The historic scale of the measures announced by Mr Sunak was highlighted by the OBR.
“This is the biggest sustained giveaway since Norman Lamont’s ill-fated pre-election Budget in March 1992,” OBR chairman Robert Chote said.
Labour leader Jeremy Corbyn welcomed the steps being taken to reduce the economic impact from coronavirus but said said the UK was going into the crisis with public services “on their knees” and an economy that was “flat-lining”.
— HM Treasury (@hmtreasury) March 11, 2020
He said: “The reality is that this is a Budget which has an admission of failure – an admission that austerity has been a failed experiment. It didn’t solve our economic problems, but made them worse, that held back our own recovery and failed even in its own terms.”
Mr Corbyn added: “Today’s measures go nowhere near reversing the damage that has been done to our country.”