PMW Budget Summary 2021

Carrot or Stick? 2020 was a year we will all want to forget but it’s financial legacy will endure because for many years to come, it will be a year that we will all have to pay for, one way or another. Over the course of the last 12 months, UK Government borrowing ballooned at the fastest ever rate in peacetime. The impact of three successive lockdowns has severely dented Government revenue and the bold measures, correctly taken to keep the shuttered parts of the economy on life support, came at a heavy cost. In economics, conventional wisdom is that governments should not live beyond their means and therefore the overriding objective for the Chancellor at this Budget might be to reign in Government expenditure and increase taxes. However, the right pathway for the UK and many other nations is not quite so straightforward. Arguably, a more effective long term strategy for debt and deficit reduction might be to hold back on tax rises until after the economy has properly recovered. After all, a larger and more prosperous economy will generate a greater tax yield. This approach might defer the reduction in debt but with the Government able to borrow at historically low rates, now might be a good time to put austerity on hold. The sense of this is reinforced by the good work of the Debt Management Office (an agency of Her Majesty’s Treasury) in extending the average duration of the UK’s debt - meaning lower interest rates for longer. Print deadlines have necessitated that I write this introduction before the actual Budget. I am therefore looking forward to seeing which side of the fence Mr Sunak decides to fall; or whether he continues to sit on it. Wishing you a healthy and prosperous 2021. Simon Lewis Chief Executive Officer