Last week the Chancellor, Rishi Sunak, stood at the dispatch box in the House of Commons and told us the stark facts of where our economy is now and is likely to be looking forward. In summary the headlines are:
- UK economy to shrink by 11.3% this year
- Unemployment to reach 7.5% next spring with 2.6 million people out of work
- Output unlikely to return to pre-crisis levels until the fourth quarter of 2022
- Borrowing to hit £394bn this year, equivalent to 19% of GDP
- UK debt equivalent to 91.9% of GDP this year will rise to 97.5% of GDP by 2025-26
- The 2025 economy will be circa 3% smaller than expected in the March pre–crisis Budget forecast
Clearly these were not good statistics to have thrown at us as we sit contemplating if we can see friends and family this Christmas, or even celebrate the end of 2020 in a style that befits the terrible year it has been. And all this is before we factor in Brexit. Deal or no deal it will have a further impact given that 80% of our economy is services based and any deal is expected to focus predominantly on goods.
One ray of light is that next year the amount of money it costs to fund all that debt will also reach a post-war record low. Historically low interest rates mean it is cheap for governments to borrow at present. This is partly why we have been given all the assistance we have in terms of furlough schemes, grants, soft business loans, deferred tax etc.
Those low interest rates are also why the Chancellor was able to announce no return to austerity generally (although there are certainly difficult times to come) and to lay out even more plans to assist the economy including:
- £4bn "levelling up" fund to pay for upgrading local infrastructure across UK (which correlates to a cut in overseas aid)
- £4.6bn package to help people back to work
- £2.6bn for Restart scheme to support those out of work for 12 months
- £1.6bn for the Kickstart scheme to subsidise jobs for young people
- £375m skills package, including £138m to provide Lifetime Skills Guarantee
- New UK infrastructure bank to be established in North of England
- Business rates multiplier will be frozen in 2021-22
That’s a lot of new help and, taken together with all the pre-exiting measures in place such as Furlough continuing until March, it may be enough to see us through to the bright uplands of vaccine freedom.
Some will argue it does not go far enough and others that it goes too far but, in my view, it is a bold and ambitious plan against the backdrop of being the worse performing economy of the G7.
Our economy therefore remains in rescue mode at present with bigger decisions to be made down the line when things become clearer. This is a recession like no other – very sector specific and hitting the young particularly hard - but as I talk to business leaders most have an air of nervous optimism. There will be more business failures and more pain to come however the majority will survive, bounce back rapidly and grow aggressively. So 2021 – look out!
For advice and support for your business as the tier system is reintroduced, please contact Dale Williams (firstname.lastname@example.org or 01242 248234).
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.