Cancelling the Budget is right – but Rishi Sunak should have seen the writing on the wall sooner

This is plainly a time for an extension of emergency support for UK workers and businesses, not for efforts to consolidate the public finances or to engage in the conventional political games of chess over tax increases, says Ben Chu

The chancellor should have recognised earlier that his insistence on ending furlough by November was unrealistic

No plan, they say, survives contact with the enemy.

And little that Rishi Sunak had planned for the UK economy after he was unexpectedly parachuted into the Treasury to replace Sajid Javid in February has survived contact with coronavirus.

The “infrastructure revolution”, the new fiscal framework, the mass house building, the doubling in investment for research – all the projects that the fresh-faced Sunak talked up in his March Budget have been utterly swamped by the pandemic and the emergency effort by the Treasury to keep the British economy from collapsing.

In that sense, Wednesday’s confirmation that the next Budget, which had been due in the coming weeks, has been shelved simply continues the theme of 2020: Covid dominates all.

The case for delaying the Budget is self-evident.

Forward-looking tax and spending plans predicated on a reasonable economic recovery at a time when we are experiencing a second surge of infections and the government has just imposed a new set of restrictions that will inevitably weigh down on economic activity and undermine consumer confidence would have been bizarre and probably counterproductive.

It’s foolish to make decisions today that may well have to be reversed in a few weeks if it’s not actually necessary to do so.

Boris Johnson explicitly told parliament on Tuesday that the new restrictions could last six months and may well be intensified if they don’t bring down the new infection rate. The outlook could scarcely be more economically uncertain. And this is before even considering the looming possibility of the economic self-harm of a no-deal Brexit in January.

Briefings and leaks over the summer had suggested Sunak was intending to use the Budget to impose new taxes to help fill the large gaps that have opened up in the public finances this year and put political blue water between the Conservatives and Labour.

There were suspicions that he hoped to get these measures in early so that their impact would be forgotten by the electorate by the time of the next election in 2024. There were even hints of impending spending cuts. Such plans sound almost quaint now that the virus is surging again.

This is a time for an extension of emergency support for UK workers and businesses, not for efforts to consolidate the public finances or to engage in the conventional political games of chess over tax increases.

Sunak has, to be fair, been prepared to reverse himself on policy at times during this crisis. 

Most notably, when his emergency loan scheme for small firms manifestly wasn’t working due to the recalcitrance of the high street banks the Treasury set up a new one that did manage to do the job.

Yet the chancellor should have recognised earlier that his insistence on ending the furlough scheme by November 2020 was unrealistic. When Germany, France, Spain, Italy and others extended their own emergency support for workers well into next year it was clear that Britain was out an uncomfortable limb. And so it has proved.

We await the details of the chancellor’s new furlough extension/replacement to be unveiled on Thursday and to see whether this will be sufficient to prevent joblessness spiking to the nightmarish threshold of four million. 

It seems likely that Sunak will roll out some kind of short-time working jobs subsidy scheme, as proposed by both the trade unions and the business lobbies.

The key element to watch for will be how well targeted it will be on the sectors of the economy that are suffering the most from the new restrictions and how generous the support will be.

But, regardless, it’s clear that a sizeable increase in unemployment is now inescapable.

And a question which will be justifiably asked is how much damage could have been avoided if the chancellor had torn up his plans earlier?