Treasury

There is a view that we don’t have to worry about the record debt the government has accumulated since coronavirus laid waste to our way of life and our economy. And in two senses I would half agree – though the other half of me is wracked with anxiety.  First, this is not a uniquely British problem; it is a problem of all developed economies. However, you should not underestimate the geopolitical significance of the explosion of debt in the rich West, because it represents by implication the fastest transfer of wealth and power to China and Asia in our lifetimes.  Second, there is the important counterfactual – namely what

Lockdowns are designed to temporarily delay the spread of the virus – but at what cost? This was the line of questioning that kicked off yesterday’s evidence session for the Treasury Select Committee, scrutinising the work HM Treasury has conducted in relation to lockdown. Chair of the committee Mel Stride asked Clare Lombardelli, Chief Economic Adviser to the Treasury, to comment on specific economic analyses conducted around lockdown restrictions, ranging from the closure of pubs, gyms and restaurants to ‘circuit breakers’ and working from home directives. It was quickly revealed that no analysis has been done. Stride’s interest stemmed from Sage meeting minutes dated 21 September, which referenced a ‘package

Just how bad will the Covid economic hit be? Today’s figures for the first quarter of 2020 show Britain’s economy shrunk by two per cent, but that takes into account just a few days of lockdown (and suggests that the recession started some time before). The March figure is more like it: despite only formally being in lockdown for eight days in March, the UK economy contracted 5.8 per cent that month alone. As Capital Economics puts it ‘in just one month the economy has tumbled by as much as it did in the year and a half after the global financial crisis.’ Yet some responses to today’s figures reveal a worrying degree of

Just weeks ago, Chancellor Rishi Sunak claimed that widespread use of the furloughing scheme was proof of its success. But it appears the government has over-achieved. The Treasury’s original prediction was that 10 per cent of businesses would use the salary safety net; the figure has turned out to be closer to 70 per cent. The cost for just one month of the scheme is estimated to be £8 billion, only £3 billion less than the NHS’s monthly budget. ‘We’re not talking about a cliff-edge but we have to get people back to work.’ says Matt Hancock, the health secretary. ‘We’ve got to wean off it.’ After telling ITV early

What is the true cost of Covid-19? No one knows – yet. But it’s not going to be cheap. The Treasury has revised its borrowing plans for May to July up to £180 billion, four times what it planned to raise and over £20 billion more than it planned to borrow all year. So how are we going to pay for all this spending? Policies at the heart of the government’s Covid-19 response, like the furlough scheme, are surpassing all estimations for uptake, and have been granted a limitless price tag by the Chancellor through to the end of June at least. As the economy contracts in a way that

Just days after the Office for Budget Responsibility announced its economic forecasts in March, the reality of Covid-19’s impact on the UK economy sunk in, and its projection was rendered completely obsolete. A month later, with a clearer picture of the toll the virus and lockdown have taken, the OBR today released its new coronavirus analysis, showing a staggering 35 per fall in real GDP in the second quarter, and an unemployment spike of up to 10 per cent – that is, 2 million additional people out of work. A long way off its Budget 2020 forecast for the year:  As the graph above shows, the OBR’s scenario predicts a ‘V-shaped’ recovery –

The Bank of England hasn’t wasted time getting in front of the coronavirus, and its actions this morning show how far things have moved from the days of Mervyn King. Perhaps more interesting than the interest rate cut is the Bank’s moves to quickly free up the best part of £200bn of lending capacity for UK businesses, particularly small firms who are entirely reliant on banks for funding. The idea is to create a firebreak, to make sure economic malaise doesn’t lead to businesses failing through lack of working cash flow. Fewer restaurants and hotel customers, a fall in those travelling, and more people working from home will all put pressure on

Philip Hammond’s former top advisor has confirmed what many in Westminster have known for some time. Writing in the Guardian, ex-special advisor Poppy Trowbridge came out all guns blazing, calling Boris Johnson ‘reckless’ and accusing him of ‘mistaken posturing and trash talk’. In the article, entitled ‘Boris Johnson talks tough but still hasn’t said what he’s doing to get a Brexit deal’, she laments the failures of May’s withdrawal agreement and writes in support of spreadsheet Phil’s bid to stave off no deal. But the Chancellor’s former SpAd also admitted the extent of Hammond-era resistance to Brexit. Responding to comments made by current PM, she writes: ‘At one point during my

How do you find the money to pay for a £20bn NHS funding pledge? Usually such discussions – and eventual calculations – would be made before the money was announced. However, Theresa May decided to ditch the rulebook this week when she unveiled her government’s funding package to boost health spending by an average of 3.4 per cent over the next five years. Far from a fully costed pledge, May referred to a rarely-sighted Brexit dividend, potential borrowing and future tax rises. The uncertainty has led to criticism from Jeremy Corbyn’s Labour – not usually known for fiscal restraint. But happily it seems the Treasury now has a plan – or

Well, this is going well. The leak of the government’s Brexit economic forecasts this week has led to an almighty row within the Conservative party. With Britain predicted to be worse off in all the off-the-shelf alternatives to EU membership, Remainers have claimed it as evidence that Brexit is a bad idea while Brexiteers are quick to brand it as the latest Project Fear effort. Steve Baker – a Brexit Minister – took the unusual step on Tuesday of rubbishing the government report – and, for that matter, the government’s ability to forecast anything; ‘I am not able to name an accurate forecast and I think they are always wrong and wrong

The leaked government Brexit forecasts have this morning been reported by the BBC just as its leakers intended: as embarrassing proof that Brexit is bad for the economy. If it had any vague interest in being impartial, perhaps the Beeb would have bothered to make the rather obvious point: not only have we seen such forecasts before, but the new figures are more optimistic than HM Treasury’s last effort. The government’s April 2016 analysis said that the economy would be 3.8 percentage points smaller than it otherwise would have in 15 years if we were to stay in the EEA; that has now been revised down to a 2pc hit.

Although this week has seen a divergence of views in the Cabinet over Brexit (not to mention Labour’s continuing Brexit confusion) on everything from chlorinated chicken to freedom of movement, there is one aspect of the negotiations that all ministers can agree on: the need for a transitional agreement. Speaking on the Today programme, the Chancellor confirmed that ‘many things would look similar’ the day after Brexit. The new Cabinet consensus for an implementation period while the UK moves towards a new relationship with the EU is something Philip Hammond has been lobbying for for some time. The expectation in Whitehall is that Theresa May will give a speech in September

You might argue that the self-employed enjoy less security than the employed, so it’s fair they contribute less; you might argue that the ‘sharing economy’ is a nifty pocket-money source for hard-pressed families, and that tax grabs will swiftly kill it. But revenue-starved Chancellor Hammond will retort that all income and commerce, however novel in form, must be taxed unless specifically exempted, otherwise government can’t make ends meet: tax should keep pace with changing patterns of life and technology. Thus Microsoft founder Bill Gates recently proposed that if robots are replacing humans in business, then companies operating robots should pay income tax on their behalf. Back in 1991, Chancellor Norman

George Osborne was famous in Westminster when Chancellor for laying large ‘elephant traps’ for Labour using Treasury policy. He was also famous for telling everyone all about how the trap worked and where it was, before falling into it himself. When Philip Hammond came into the Treasury, it was largely accepted that the days of silly elephant traps were over. But this week the new Chancellor ended up locating one of the last of the Osborne elephant traps which had been lying dormant in the political jungle – and he located it by falling straight into it. The ‘tax lock’, which the Tories announced in the 2015 election campaign to