HAMISH MCRAE: Sunak must listen to the business community about the things that are holding it back
There are just ten days to go before the Budget – and ten days to get policy right for the recovery. First, some good news.
The public finance numbers are looking much better than expected, or at least expected by the Office for Budget Responsibility. This means that tax rises can be put on hold.
The deficit is still huge, let’s be clear about that. But with the January numbers now in it looks as though the deficit will be way below the £400billion expected by the OBR. At the end of January it was £271billion, so with only two more months to go in this financial year, it should end up around £325billion.
Looming Budget for Sunak: ‘A prime example of the need to listen will be the City’, says McRae
Quite why the OBR should be so wrong will take a while to emerge, but I think it misses the intuitive judgment of Sir Robert Chote, its former chairman.
The most encouraging number in the latest Government accounts is not the borrowing but the tax revenue. This is down 6 per cent on the previous year, which suggests that the economy is not down by the 9.9 per cent officially recorded, but by quite a bit less.
We can be pretty sure that it will race out when the brakes come off and when that happens tax revenues will bounce back.
It may be, fingers crossed, that revenues will recover fast enough to enable us to dig our way out without any serious increases in tax rates.
The task for Rishi Sunak when he presents the Budget on Wednesday week will be to keep that momentum going. How can he meet that challenge?
The answer will lie in the detail. This is not a big tax or big spending thing, though more money will have to be spent on easing companies over those last few weeks before the recovery takes hold.
He deserves a following wind – and, my word, we all do
Rather it will be about listening to the business community about the things that are holding it back, and then making a measured judgment between what would be nice to do and what absolutely must be done.
A prime example of the need to listen will be the City. It has become clear that a fair bit of European business will go back to the EU, or go to New York since it is offered better terms than in London. The loss may be much less than the pessimists forecast, but it is a loss nonetheless.
There is no point in fulminating about the irrationality of Brussels, or the damage done to European companies that have to pay higher financing costs. What is needed is to figure out how to promote our financial services to the 85 per cent of the world economy that is not in the EU. That will be a mixture of legislation, regulation and taxation.
We used to be good at this. London created the modern global money markets in the 1960s, when bankers realised that they could deal in dollar deposits in London as well as New York.
They created the Eurobond market when the US introduced a tax on US bond issues in 1961. And then with the Big Bang reforms of 1987, London quite suddenly pulled level with New York and then spurted ahead in international financial business. We need to create that mindset – looking out, not in – again now.
Rishi Sunak understands all this. So too does Andrew Bailey, Governor of the Bank of England, who started his career at the Bank just before Big Bang, when it was the de facto sponsor of the reforms. But, of course, this is not simply a financial services thing.
The entire economy needs to look outwards. You don’t do this by telling people to do so. You do it by removing regulatory blockages, making modest tax reforms, and allowing the magic of enterprise to show through. The Chancellor deserves a following wind – and my word, we all need one too.
Rising: The pound pushed back above $1.40 on Friday
The pound pushed back above $1.40 on Friday. About time too, you might think, for the natural range for most of the past 30 years has been in the $1.50 to $1.70 region, with only quite brief forays below $1.40 or above $1.80. We are not back to that band yet, though I could see that happening before the end of the year.
What I think this means is that the excessive absurd negativity about the UK economy is starting to fade. People who have bet against sterling, and there were many, have lost money. Nothing like losing money to make you rethink your view of the world.
There are big problems with the UK economy, as there are with all economies. But I suggest that the rehabilitation of the pound in the eyes of the global investment community means that it will get a fair hearing, not a prejudiced one.
THIS IS MONEY PODCAST
- What happens next to the property market and house prices?
- The UK has dodged a double-dip recession, so what next?
- Will you confess your investing mistakes?
- Should the GameStop frenzy be stopped to protect investors?
- Should people cash in bitcoin profits or wait for the moon?
- Is this the answer to pension freedom without the pain?
- Are investors right to buy British for better times after lockdown?
- The astonishing year that was 2020… and Christmas taste test
- Is buy now, pay later bad news or savvy spending?
- Would a ‘wealth tax’ work in Britain?
- Is there still time for investors to go bargain hunting?
- Is Britain ready for electric cars? Driving, charging and buying…
- Will the vaccine rally and value investing revival continue?
- How bad will Lockdown 2 be for the UK economy?
- Is this the end of ‘free’ banking or can it survive?
- Has the V-shaped recovery turned into a double-dip?
- Should British investors worry about the US election?
- Is Boris’s 95% mortgage idea a bad move?
- Can we keep our lockdown savings habit?
- Will the Winter Economy Plan save jobs?
- How to make an offer in a seller’s market and avoid overpaying
- Could you fall victim to lockdown fraud? How to fight back
- What’s behind the UK property and US shares lockdown mini-booms?
- Do you know how your pension is invested?
- Online supermarket battle intensifies with M&S and Ocado tie-up
- Is the coronavirus recession better or worse than it looks?
- Can you make a profit and get your money to do some good?
- Are negative interest rates off the table and what next for gold?
- Has the pain in Spain killed off summer holidays this year?
- How to start investing and grow your wealth
- Will the Government tinker with capital gains tax?
- Will a stamp duty cut and Rishi’s rescue plan be enough?
- The self-employed excluded from the coronavirus rescue
- Has lockdown left you with more to save or struggling?
- Are banks triggering a mortgage credit crunch?
- The rise of the lockdown investor – and tips to get started
- Are electric bikes and scooters the future of getting about?
- Are we all going on a summer holiday?
- Could your savings rate turn negative?
- How many state pensions were underpaid? With Steve Webb
- Santander’s 123 chop and how do we pay for the crash?
- Is the Fomo rally the read deal, or will shares dive again?
- Is investing instead of saving worth the risk?
- How bad will recession be – and what will recovery look like?
- Staying social and bright ideas on the ‘good news episode’
- Is furloughing workers the best way to save jobs?
- Will the coronavirus lockdown sink house prices?
- Will helicopter money be the antidote to the coronavirus crisis?
- The Budget, the base rate cut and the stock market crash
- Does Nationwide’s savings lottery show there’s life in the cash Isa?
- Bull markets don’t die of old age, but do they die of coronavirus?
- How do you make comedy pay the bills? Shappi Khorsandi on Making the…
- As NS&I and Marcus cut rates, what’s the point of saving?
- Will the new Chancellor give pension tax relief the chop?
- Are you ready for an electric car? And how to buy at 40% off
- How to fund a life of adventure: Alastair Humphreys
- What does Brexit mean for your finances and rights?
- Are tax returns too taxing – and should you do one?
- Has Santander killed off current accounts with benefits?
- Making the Money Work: Olympic boxer Anthony Ogogo
- Does the watchdog have a plan to finally help savers?
- Making the Money Work: Solo Atlantic rower Kiko Matthews
- The biggest stories of 2019: From Woodford to the wealth gap
- Does the Boris bounce have legs?
- Are the rich really getting richer and poor poorer?
- It could be you! What would you spend a lottery win on?
- Who will win the election battle for the future of our finances?
- How does Labour plan to raise taxes and spend?
- Would you buy an electric car yet – and which are best?
- How much should you try to burglar-proof your home?
- Does loyalty pay? Nationwide, Tesco and where we are loyal
- Will investors benefit from Woodford being axed and what next?
- Does buying a property at auction really get you a good deal?
- Crunch time for Brexit, but should you protect or try to profit?
- How much do you need to save into a pension?
- Is a tough property market the best time to buy a home?
- Should investors and buy-to-letters pay more tax on profits?
- Savings rate cuts, buy-to-let vs right to buy and a bit of Brexit
- Do those born in the 80s really face a state pension age of 75?
- Can consumer power help the planet? Look after your back yard
- Is there a recession looming and what next for interest rates?
- Tricks ruthless scammers use to steal your pension revealed
- Is IR35 a tax trap for the self-employed or making people play fair?
- What Boris as Prime Minister means for your money