UK’s post-coronavirus economy could look very different: Report

Sources say Prime Minister Boris Johnson’s government is bracing for the UK’s worst recession in 300 years.

Boris new podium - reuters
British Prime Minister Boris Johnson and Chancellor Rishi Sunak are reportedly discussing possible corporate tax hikes to fund the National Health Service [File: Third party via Reuters]

Boris Johnson plans to re-set his government’s agenda with a major speech and a financial statement to prepare the U.K. for the new reality after the coronavirus pandemic.

Amid forecasts of the worst recession in 300 years, Chancellor of the Exchequer Rishi Sunak is drawing up options to bolster the economy after the government withdraws its vast package of financial support in the months ahead, according to people familiar with the matter.

For Johnson, the priority will be to focus on reasserting his broader political mission in the age of the virus, one person said. The Conservative Party leader and public face of Brexit, Johnson was elected with a large majority just six months ago on a promise to “level up” the forgotten parts of the country.

Yet his plans have been derailed by the global pandemic, with his government’s agenda put on ice as the coronavirus crisis took over. Work has begun on preparing for a key speech, expected at the end of June, one person said.

On Monday, Health Secretary Matt Hancock promised more details on the “economic response” later this summer after he was asked about government preparations for a recession amid fears of bankruptcies and job losses.

Questions, Policy Options

“The economy’s going to have to change,” Hancock told the government’s daily virus briefing in London. “We’re going to have to be a different type of economy as we come out of this and you’re going to hear more of that from the chancellor and the prime minister, who’ve been working so hard on this, in the weeks and months to come.”

Officials privately confirmed work is under way on a fiscal event but said it is too early to be precise about the detailed policy proposals, or about the date, though one person said it is likely to be in July.

Among the questions that have been discussed among Johnson’s allies include whether there is potential to raise income tax or national insurance specifically to pay for investment in the National Health Service. Business taxes may also rise, as internal polling suggests there is public support for increases in corporation tax.

Support Measures

Other options could include a windfall tax on sectors that have profited during the pandemic — such as supermarkets or technology companies, one person familiar with discussions said.

Sunak, who has spent unprecedented amounts supporting the U.K. economy during the coronavirus crisis, kept the spending taps firmly on last week as he announced plans to taper his job support program, unveiling an incremental withdrawal in a bid to avert a mass wave of unemployment this summer.

The self-employed will be offered a grant of as much as 6,570 pounds ($8,205) in August to cover another three months of earnings, while furloughed workers will continue to receive 80% of wages through October. Employers will only start taking the burden of their National Insurance and pension contributions in August, before paying 10% of workers’ wages in September, and 20% the following month, the chancellor said.

The two jobs’ plans are currently supporting 10.7 million jobs, and have come at a cost of almost 22 billion pounds. The cost of both programs could easily breach 100 billion pounds, about 11% of total government spending in a normal year and equivalent to the amount spent on the National Health Service, according to the Institute for Fiscal Studies.

Source: Bloomberg