Britain unveiled a 30 billion pound economic stimulus plan on Wednesday to tackle the risk of a coronavirus recession, just hours after the Bank of England slashed interest rates in a double-barrelled response to the crisis.
Chancellor Rishi Sunak announced the plan as part of a debt-fuelled investment surge for the coming years that budget forecasters said was the biggest stimulus since 1992 after a decade of austerity.
Sunak said the world’s fifth-biggest economy was facing a “significant impact” from the virus, whose rapid spread has stoked fears of a global recession and shaken financial markets, even if the hit was likely to be temporary.
“Up to a fifth of the working age population could need to be off work at any one time. And business supply chains are being disrupted around the globe,” Sunak said in an annual budget speech to parliament on Wednesday.
“I will do whatever it takes to support the economy.”
The 39-year-old former Goldman Sachs analyst, who has only been in the job for a month, said he would help companies facing a cash-flow crunch, including a year-long suspension of business rates by smaller firms, and funding for sick pay.
He said companies and self-employed people would be able to defer tax payments and he relaxed sick pay qualification rules for workers and people on benefits.
Britain‘s health system and other public services would receive an extra £5 billion to help counter the spread of coronavirus. At least six people have died in Britain and 383 coronavirus cases have been confirmed, including a junior health minister.
Prime Minister Boris Johnson had hoped the first tax-and-spending plan of his new government would showcase his plans to direct investment towards poorer regions, where voters helped him to a big election victory in December.
But with medical officials warning of an expected jump in coronavirus cases in the coming weeks, Sunak had to fund new spending priorities.
Public investment of more than £600 billion over the next five years, to levels not seen since 1955, represents a turning point for Britain after a decade of austerity to narrow its budget deficit.
Paul Johnson, head of the Institute for Fiscal Studies think-tank, said Sunak’s pledge to increase spending on public services by 2.8% a year was remarkable.
“As the Chancellor says this is much faster than economic growth,” he said on Twitter. “With investment spending rising even faster, something has to give.”
PwC chief economist John Hawksworth said Sunak was taking a calculated risk by committing to a spending surge in the face of uncertainties about coronavirus, Britain‘s ability to secure a European Union trade deal and the global economy.
“Time will tell if this gamble pays off,” he said.
Against a backdrop of plunging stock markets worldwide and signs of a slowdown appearing in Britain‘s economy, the Bank of England cut its key rate by half a percentage point to 0.25 percent.
The central bank also introduced a new programme for cheap credit and reduced a special capital buffer to give banks more room to lend.
“This is a big package. It’s a big package. It is a big deal,” Governor Mark Carney said, adding that the BoE’s measures were equivalent to “north of 1 percent” of economic output.
He said the Bank was coordinating with the government to have maximum impact.
Britain‘s economy unexpectedly flat-lined in January even before the impact of the coronavirus kicked in, according to official data published on Wednesday.
Sunak said he would be able to meet the fiscal rules set by his predecessor Sajid Javid although the rush to come up with measures to fight coronavirus meant the full stimulus cost was not yet included in borrowing forecasts.
Britain‘s independent budget forecasters lowered their predictions for economic growth this year, an estimate that does not yet include an updated estimate for the impact of the virus.
But Sunak said growth over the next two years would be 0.5 percentage points higher than it would have been without his stimulus plan.
He said a duty on fuel would be frozen for a ninth year in a row — a move likely to disappoint climate change campaigners — but hinted the freeze might not continue much longer.
Sunak said Britain would increase pollution taxes, saying he would freeze a levy on electricity used by companies but would raise it on gas.