Time for the chancellor to “walk and chew gum” if the country is to emerge from the pandemic ready to deal with the next big shock.
Danni Hewson, AJ Bell financial analyst, comments on the Office for Budget Responsibility Fiscal risks report:
“Can Rishi Sunak walk and chew gum? According to the boss of the government spending watchdog that’s what’s going to be required if the chancellor is going to pull the country out of the pandemic in a fit and proper state to deal with what comes next. Because what comes next, says Richard Hughes, could be another catastrophic shock, whether that’s from climate change, disease or even cyber-attacks the country, indeed the world, is vulnerable to.
“There is no one solution, the government can’t just focus on spending the country’s way out the pandemic at the expense of failing to spend on climate change measures. Similarly it can’t ignore Covid scars and fail to fund catch up programmes for education or extra cash to help the NHS whittle down ballooning waiting lists in order to pay down debt and create headroom to deal with the next big global challenge. It has to do it all and it has to do it all fairly quickly if it’s not going to cost more in the long run.
“The road to net zero is paved with fiscal opportunities and more than a few potholes. Crack on and costs can be spread over the next thirty years, decades of carbon taxes can offset spending and any loss of fuel duty could be replaced by a road user charge. Act quickly and the cost of meeting targets could add less to the debt ledger than the pandemic has done.
“Food for thought when you consider the OBR warns that the debt mountain, which has been shovelled up higher because of pandemic costs, is more exposed to inflation and rate shocks and those shocks are becoming more frequent. But the ability of the country to deal with shocks is becoming more resilient. It took four years for the economy to return to pre-crisis output levels after 2008, current estimates suggest recovery from the pandemic will take just two.
“But growth is slowing and there is a danger in the UK that recovery will deepen the chasm between the haves and the have nots. Whilst savings have increased for a great number of people the OBR tilts a mirror towards those whose household finances have spiralled the other way.
“Yes, the chancellor has a tightrope to walk, whilst chewing the aforementioned gum.”
