Sunak Faces Calls to Spend Big to Avert Lasting Economic Damage

(Bloomberg) -- U.K. businesses are urging the government to ramp up public spending to protect jobs as the economy embarks on a fragile recovery from the coronavirus lockdown.

The Confederation of British Industry is calling on Chancellor of the Exchequer Rishi Sunak to extend the programs of grants, business rate relief and tax deferrals he announced at the start of the crisis to help firms survive the coming months.

The lobby group also pressed Sunak to consider targeted tax cuts to spur demand. Those include reductions in value-added tax for particular industries and a lowering of Stamp Duty Land Tax, a levy on home sales.

The call comes after Prime Minister Boris Johnson this week announced a dramatic lifting of the restrictions imposed in England in March as he looks to rescue an economy that contracted a record 20% in April alone. While the new guidance will allow many businesses to reopen, continued social distancing rules still threaten to hamper their ability to trade normally, heightening the risk of a wave of unemployment and closures once government support is withdrawn.

The importance of a rapid bounce-back was highlighted by a separate report from the Institute for Fiscal Studies. A sluggish recovery from the financial crisis had led to an unprecedentedly bad decade for growth in living standards, with those on lowest incomes particularly suffering, the research group said.

Welfare cuts since 2011 have left the average out-of-work household an average of 1,600 pounds ($2,000) a year worse off than they would have been, the IFS said. Incomes for those at the 10th percentile were essentially unchanged in the five years through 2019, the report found.

Additional spending would come on top of the already unprecedented measures the government has taken during the crisis and see already swollen levels of public debt increase further. The U.K. is paying the wages of almost 12 million people, and debt is forecast to rise to more than 100% of gross domestic product for the first time since the 1960s.

Still, with borrowing costs close to record lows, many economists and former policy makers have stressed that Sunak has scope for more stimulus, and that the U.K. can live with an elevated debt load for some time to come.

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