Sunak Sees ‘Hard Choices’ With Warning on U.K. Expenditure
Sunak Sees ‘Hard Choices’ With Warning on U.K. Expenditure
(Bloomberg) -- Chancellor of the Exchequer Rishi Sunak said “hard choices are everywhere” as he warned about the need to get U.K. spending and borrowing under control in the wake of the pandemic.
His comments may fuel speculation that Britain faces significant tax increases once the crisis has passed. The coronavirus has blown a hole in the public finances, with the government spending tens of billions to support jobs and prop up the economy.
With the virus still not under control, there’s growing unease in Sunak’s Conservative Party about the debts being stored up for the future. The pandemic has pushed the national debt above 2 trillion pounds ($2.6 trillion), or more than 100% of gross domestic product.
“We have a sacred responsibility to future generations to leave the public finances strong, and through careful management of our economy, this Conservative government will always balance the books,” Sunak told his party’s annual conference. “If instead we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us? I have never pretended there is some easy cost-free answer.”
The nation has already borrowed more since it introduced a national lockdown in March than during the whole year following the financial crisis, with the budget deficit on course to be approaching 400 billion pounds in the current fiscal year, almost a fifth of the economy.
Manifesto Promises
Sunak later laid out his concerns at a side event: What “we can’t have is a situation where years past this crisis, we’re still borrowing huge amounts of money every year.”
With public services bearing the brunt of the austerity that followed the financial crisis, Sunak is expected to raise taxes rather than cut spending to repair the damage inflicted by the coronavirus.
But the pressure on the chancellor remains largely political, rather than financial. Bank of England support means that bond yields remain near record-lows, while debt-servicing costs have fallen this year, even with the vast increase in borrowing.
The chancellor also fretted it would be “challenging” for Tories to meet all the commitments laid out in the party manifesto for last December’s election: it’s “pretty safe to say those are going to be tricky to meet at the moment.”
With the U.K. virus caseload heading upwards after a lull over the summer, the chancellor said decisions on the public finances would need to be taken in “the medium term.”
The chancellor is already bracing for a wave of unemployment when his flagship furlough program ends at the end of October.
Some economists forecast joblessness will surge past 3 million from 1.4 million currently as businesses forced to remain closed, or those unable to re-open fully, let go workers they can no longer afford.
The main opposition Labour Party was ready to attack. “Britain risks the worst unemployment crisis in decades and Rishi Sunak’s name will be all over it,” shadow chancellor, Anneliese Dodds, said.
Sunak on Monday reiterated a line he’s said often in recent weeks: that he can’t save every job.
“The pain of knowing it, only grows with each passing day,” he said while also trying to offer some reassurance. “Even if it feels like there is no hope, I am telling you that there is, and that the overwhelming might of the British state will be placed at your service.”
With the U.K. media filled with stories about the chancellor pushing back against some of the toughest proposed coronavirus restrictions, Sunak paid tribute to Prime Minister Boris Johnson, acknowledging the “difficult trade-offs and decisions” the pandemic has forced upon him.
Close Relationship
“Challenges are part of the job, but on the big calls, in the big moments, Boris Johnson has got it right and we need that leadership,” he said. He later told the inHouse event that the two men are “personally close” and that he “definitely” did not want the keys to the prime minister’s residence.
“Like all cabinet ministers in any government, we’re not we’re not all robots, right, the whole point is we’re there to discuss and debate and do that and try and get to the collective right answer,” he said. “But it’s always done from a spirit of trust and respect.”
Sunak added that he and his family had moved into Downing Street over the summer, and that the prime minister’s dog, Dilyn, is his daughters’ “favorite thing.”
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