LONDON—British finance minister Rishi Sunak will probably have to ramp up borrowing again this year, even with the country already on course for its biggest peacetime budget deficit in three centuries, leading think-tanks said on Thursday.
The Institute for Fiscal Studies said the deficit could hit 350 billion pounds ($442 billion) following Sunak’s latest emergency coronavirus spending announcement, but that was the price to pay for rescuing the economy.
“Back in March, the government forecast a deficit of about 50 to 60 billion pounds this year. Our current estimate is it could well be around 350 billion pounds,” IFS deputy director Carl Emmerson said.
Sunak was likely to deliver more targeted support to the economy again in the autumn, the IFS said.
The Resolution Foundation said high-street retailers had received little help and would probably need more assistance.
Pharmacy and beauty products retailer Boots said on Thursday it would cut more than 4,000 jobs, and department store chain John Lewis said 1,300 jobs could go as it announced the closure of eight stores.
“By not going further the chancellor is taking quite a gamble on the strength of the recovery in the months ahead,” Torsten Bell, the think-tank’s chief executive, said.
Despite the scale of its borrowing, Britain’s emergency measures so far represented a “a mid-range bazooka” at 8 percent of economic output, smaller than the United States’ 12 percent, he said.
Britain’s economy shrank by a quarter in March and April and the signs of recovery so far have been limited.
Sunak, who has ignored his Conservative Party’s pro-market instincts to put the state at the heart of his recovery plan, on Wednesday announced measures costing 30 billion pounds to stem a surge in unemployment, including bonuses for firms that help bring back as many as 9 million workers from furlough.
He also cut value-added tax on spending at hotels, restaurants and tourist attractions in a bid to protect 2.4 million hospitality jobs and temporarily scrapped purchase taxes for homes costing under 500,000 pounds in the hope of boosting the housing market and the broader economy.
The new measures came on top of extra spending of around 160 billion pounds since the coronavirus crisis escalated in March.
Tax Bills Ahead
Huge uncertainty surrounded exactly how much Britain would borrow this year due to the economic damage from COVID-19, but as a share of output it was on course to be its highest outside wartime in more than 300 years, the IFS said.“The time to pay for all this will come. But not this year and not next,” IFS director Paul Johnson said.
Asked about tax increases, Sunak said he would put the public finances back on a sustainable footing once he had a clearer view of the economy’s recovery from its deep recession.
The IFS said it was too soon to judge if Sunak was right to stick to his plan to phase out his furlough scheme.
The programme offering businesses a 1,000-pound subsidy for each worker who returns and is still on their books in January would transfer money to employers who would have brought back employees anyway, the IFS said.
The government’s top tax official, Jim Harra, told Sunak it was unclear that the 9 billion-pound subsidy programme was good value for money.
Sunak acknowledged there would be “dead weight” in his plans but said he had to act on a big scale and quickly.
IFS deputy director Helen Miller also questioned the tax cuts. Property transactions are set to rebound as the lockdown is lifted, while the VAT cuts mean help will flow mostly to hospitality firms that are able to ramp up sales most quickly, she said.
