Citi Says Sunak Can ‘Go Big’ On Stimulus Spending in U.K. Budget
(Bloomberg) -- Rishi Sunak can afford to follow the U.S. and “go big” on spending to bolster a post-pandemic recovery in the U.K., a Citigroup economist said as the chancellor of the exchequer prepares his annual budget.
At the same time, the British measures should be “better targeted” than the ones President Joe Biden set out, according to Ben Nabarro, the bank’s U.K. economist. He warned that many years of deficits mean that the U.K. Treasury has less room for maneuver than the U.S.
“We have the capacity to go big for sure, but at the same time, it’s important that we do keep a medium-term anchor on the public finances,” Nabarro said at a briefing on Tuesday organized by the Institute for Fiscal Studies in London. “The U.K. is not the United States,” he said. It’s “particularly important we do offer some sight of credibility in the medium term, even if, you know, we were seeking to be more expansionary immediately.”
After taking office last month, Biden is pushing Congress to approve a $1.9 trillion stimulus package. Treasury Secretary Janet Yellen told Sunak and other finance chiefs on a G-7 call last week that “the time to go big is now.”
Sunak has repeatedly warned he has a duty to restore the country’s finances to health, and the budget presents a tricky balancing act for him. With the country immersed in its third lockdown to control the pandemic and many businesses still unable to open, he’s under pressure to extend support for workers and companies bracing for a contraction in the first quarter.
Earlier Tuesday, the IFS said Sunak eventually may need a tax increase of 60 billion pounds ($84 billion) to balance his books. Its central scenario is the Treasury will borrow about 130 billion pounds by the middle of the decade, 30% more than than was forecast in November.
Nabarro said the scope for the Bank of England to lift the economy through monetary policy is limited, suggesting Sunak and the fiscal purse will bear the biggest burden in putting growth back on track.
Britain has suffered both one of the world’s worst health crises per capita, with more than 4 million Covid-19 infections and more than 120,000 people dead, and also one of the poorest economic outcomes.
The IFS suggested Sunak should target help for groups that have been left out of the furlough, which grants those unable to work up to 80% of their wages. Self-employed workers and those with irregular employment patterns have had trouble accessing government programs.
“In the end, it’s spending well that really matters,” said Paul Johnson, director of the IFS.
The research group said it’s likely Sunak will have to boost spending on health, education and the courts to repair some of the damage done by the pandemic. Johnson said that to raise tax revenue, instead of a one-time levy on wealth, the chancellor should reform the way inheritance and capital gains are taxed.
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