What does the Budget hold in store for us next week?
24 February 2021
By Stephen Haddrill, Director General
This is one of the hardest budgets to predict of recent times because the range of possible economic scenarios for the rest of the year is itself so wide. And, unlike some of his predecessors, the Chancellor has floated nothing of significance. But the ink must be nearly dry. Today, the OBR will start its work on assessing the soundness of the proposals. The rest of us have another week to wait.
The Chancellor’s immediate challenge is to work out for how long he needs to maintain support for business to prevent the economy from toppling off a cliff. My hope is that he will maintain furlough and most other schemes through most of the year. The economy may be a coiled spring but there remains a real risk of recession and damage to the underlying capacity of the economy from early withdrawal of support. This is a risk the Chancellor does not need to take this year. His capacity to raise debt remains strong and its cost is at a historic low.
That said, he needs to reduce the deficit at some point which will have to involve both cuts to expenditure and increases in some taxes. Deciding when and how to do this is one of the most difficult challenges in Government. History suggests that he should wait until the recovery is well established. The austerity measures that followed the financial crisis did not get fully into gear until 2011. But the question of when to start tackling the deficit is about politics as much as economics. Fostering economic recovery may suggest leaving the tough measures for a couple of years but that means they will be hitting our wallets just as a General Election looms into view.
Cutting spending in the short term will in any event be hard going. The NHS has a backlog of non-COVID treatment to provide. The railways and other parts of our transport system are in financial meltdown. And the political will to make cuts is not there, as evidenced by the row over the extension of universal credit.
Increasing taxes is no easier than cutting expenditure. There is a 2019 manifesto commitment not to do so, which will need to be worked round. To get significant amounts of extra revenue, the Chancellor will need to look at the big revenue earners; VAT, Income Tax and National Insurance. Increases in these upset almost everyone. Increases in more specific taxes, such as fuel duty, may win some support but they also provoke some noisy lobbies and earn less revenue.
So, what do we hope to hear about the medium to long term plan for recovery and debt reduction. Businesses need to see significant investment by the Government to support the economic recovery so that the eventual need to reduce the National Debt will be easier to afford and less painful. But that investment must be focused on generating a sustainable upward shift in the capacity of the economy to grow. This will only be achieved by increasing productivity through investment in skills, innovation and infrastructure, and meeting net zero targets. All of these measures are in earlier commitments made by Government. Now we need the details of the plan - the road map. And once we have the details, the Government must stick to the map. Too often the private sector has adjusted business models in response to policy, only to have the rug pulled out from beneath them. Certainty is needed from the Chancellor so that business can invest with confidence. That is a big ask in such uncertain times, but without it we will limp, not spring, forward.
05 Jan 2021
As we embark on a new year, much of the news about Covid 19 and the economy is bleak - infections are rising and economic growth has stalled. However, our situation could have been so much worse without two things: the gift of the vaccine; and the agreement of the trade deal. They give us all the chance for cautious optimism that the recovery will start properly in the year ahead. But whether that turns into real future prosperity depends on the decisions taken by Government and businesses in the next few months. So what should we now expect from the Government in 2021?
08 Oct 2020
Earlier this week the Treasury announced revisions to the legislation which prescribes how default notices issued by lenders should be written. This is a step forward. For too long, the law has required lenders to use language that is threatening in tone and does not reflect the mutually respectful relationship that lenders seek with borrowers.
It might seem churlish therefore to complain, but the truth is that the announcement has only scratched the surface of what needs to be done to reform consumer credit legislation.
17 Sep 2020
The Chancellor is working on the shape of his Comprehensive Spending Review and Budget to determine what the Government can afford to spend and how spending should be allocated at a time of the greatest uncertainty. The pandemic is placing huge pressures on him to keep the taps open to maintain economic recovery. At the same time, his ability to raise taxes to pay for this largesse is severely constrained for the same reasons. There will be a gap in the country’s finances, and it may have to be met by borrowing. Fortunately, interest rates are low, and the Government remains credit worthy. It can afford to ease the pain of business and individuals through the winter.
21 Aug 2020
Now more than ever Government needs to avoid becoming trapped in the here and now. It must show anticipation and vision. That is not at all easy given the need to tackle so many short term problems against a backdrop of uncertainty about what the next months will bring. So it’s good that major long term priorities such as net zero, raising productivity and levelling up across the country are still being addressed. These are goals that the FLA wholly supports and we look forward to the coming spending review showing vision in taking them forward...
20 Jul 2020
We stand at a fork in the Covid road. In one direction the virus fades away, business opens further and economic recovery gathers real momentum. In the other, we bounce from lockdown to lockdown, with millions losing their livelihoods and the economy remaining in the doldrums for years.
01 Jul 2020
Hardly a year goes by without the role of regulation in the economy being reconsidered.
04 Jun 2020
We are great spenders. Consumption is the lifeblood of the British economy.
20 May 2020
The Coronavirus crisis is often described as unprecedented, but the effects on people of an abrupt change in circumstances, such as loss of income, are all too familiar – uncertainty, anxiety, and the fear of being overwhelmed.
27 Mar 2020
In numerous conversations with Government, we have been very clear that the tools used to support the banking sector in 2008 are too narrowly focused to support firms of all sizes, in every sector of business, across the whole of the UK economy in 2020.
11 Mar 2020
The Chancellor has delivered a budget for business, whilst extending a helping hand to people threatened by Coronavirus.
06 Mar 2020
International Women’s Day, which falls this weekend, is a great moment to stand back and reflect on whether we are doing enough on diversity and inclusion.
17 Feb 2020
The pace of technological innovation can at times seems daunting, but technology is simply a means to an end, not an end in itself.
06 Feb 2020
The Government’s decision to bring forward the ban on selling new petrol, diesel and hybrid cars from 2040 to 2035 will require the concerted efforts of politicians, regulators, manufacturers, lenders, utilities and planners to make it achievable.
22 Jan 2020
Lending to small and medium businesses has been falling for some time, especially outside the South East. It has been suggested that this shows SMEs are cash rich but unwilling to invest. There is some truth in both statements. But there is also a ray of hope if we look beyond the use of conventional borrowing and overdraft facilities.
16 Jan 2020
During his time as Governor of the Bank of England, Mark Carney has been a leading voice in encouraging policymakers, business and investors to recognise the key role of markets, financial and otherwise, in tackling climate change.
13 Dec 2019
After the turbulence of recent months, we now have a Government with a mandate to govern for a full term – and the numbers to get business through the House of Commons.
That list of business is very long, and of course begins with negotiating a rather tricky post-Brexit trade deal, not to mention a brewing storm about the unity of the UK. As strong as the SNP are in Scotland, their influence in Westminster has been blown away by the size of the Conservative majority. And what about unity more generally? Some basis for co-existence between leavers and remainers needs to be found.
So, what are the implications of the General Election results for the financial services sector and FLA members in particular?