Anyway, the new chancellor of the exchequer has the opportunity, and the obligation, to stun the nation and support the economy as it faces some rather well-published dangers – the coronavirus outbreak, Brexit, and the general lack of unleashed potential that we were promised would flood the country after 31 January. We got some less pleasant flooding instead, you might have noticed.
So this is no time for fiscal conservatism and rigid adherence to arbitrary rules about borrowing. The economy needs help and it needs help urgently. Building new railways lines, a 5G network, flood defences and bridges across the Irish Sea are all very well, but they are slow burners. The economy needs its medicine, a substantial and eye-catching confidence-building cash injection, now.
What to do?
Fortunately, there is a fairly promising precedent. In the financial crisis of 2008, the Labour chancellor, Alistair Darling, cut VAT, from 17.5 per cent to 15 per cent. That was smart enough – an immediate first-thing-in-the-morning impact on sales and consumer spending, getting people into the shops (assuming the entire nation is not going into self-isolation). The even smarter bit was that the chancellor made it a temporary cut, a one-year only offer. Imagine if Sunak slashed VAT back from its current 20 per cent (where George Osborne raised it to in 2011) back to 15 per cent, but warned that it would be back up again in 2021. It had a major impact in 2008-09, and would do so again now. You might not think a tenner off a new iPad would make much difference to people, but it seems it does, even if only means shoppers bring their existing purchasing intentions forward.
Indeed Sunak could have more fun by cutting the current 5 per cent on gas and electricity bills to zero. A temporary cut during the UK’s post-Brexit transition period is permitted if it is approved by the European Council; it is hard to see them trying to stop a former member attempt to rescue its economy in this way. Again, the rate could go back up in the New Year. I can see there is a green argument against the move, but we all need to keep warm during this coronavirus outbreak, don’t we?
I would go further, though, as they say at the despatch box on Budget day. Cutting VAT is progressive move, because it helps poorer consumers disproportionately, but another rapid way to boost spending power is to raise benefits, because they are mostly spent and not saved, for obvious reasons. An immediate cash payment to everyone on the old age pension or in receipt of Universal Credit and other benefits would do the trick – say a few hundred quid. There would then be no difficulty in trying to claw back an increase in the monthly rates of benefit when the emergency has passed.
Of course, the chancellor would have to borrow even more to pay for this largesse, though he could lessen the impact on the national debt by slowing spending on the government’s huge capital projects – they can wait a few months longer. Cutting VAT and one-off special benefits and pension payment would be popular moves and would help the most vulnerable in society who have had such a rough time with the roll-out of Universal Credit – but above all would lead the world in showing how a national government can take bold action at a time of global crisis. Like I say, Rishi Sunak can save the world. I hope Downing Street will let him.
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