UK Government: For my next trick

Last week, the Government pulled 2 rabbits out of its hat: a tentative roadmap to exit lockdown; and a five-month extension to the furlough scheme.

Both of these announcements have been broadly well received by both the public and media, even if there remains some confusion over the clarity of the new ‘stay alert’ messaging (Opinium Report).

However, now that we have a tentative way forward over the next few months, attention must [re]turn to the wider strategic questions which will determine how the UK recovers from the pandemic. This can be broken down into three core areas: how to stimulate an economic recovery; negotiating a successful Brexit deal; and re-engineering fiscal policy to address the new situation.

There is widespread, cross-party, support for a green recovery as a route to turbo-charge the climate change initiative and re-invigorate domestic manufacturing. Pressure to make this the backbone of the economic recovery is coming from numerous quarters. There is a desire at the top of Government to take the lead ahead of COP21 next year; there is the delayed, but incoming, sixth carbon budget by the Committee on Climate Change in September which marks government progress on meeting the 2050 net zero target; and, the planned net zero work currently being drawn up by both Treasury and BEIS which will outline financing routes – originally due to be published in the summer. All of this is underpinned by high public support, a fact not missed by No. 10.

BEIS is already working on what this green recovery could look like, but some low hanging fruit which could be picked include home energy efficiency, a roll out of ultra-low emission zones in cities, and clean power generation projects such as the proposed tidal lagoon fleet.

While this work continues, many businesses remain unsure of what their future prospects look like as the countdown to leaving the UK-EU implementation period ticks ever closer. Last week’s back and forth between Gove and Barnier continue to give the impression that negotiations are at an impasse, but there are some green shoots which offer a route through. The EU seems to be back-tracking from demanding unilateral fishing access to UK waters, and there are hints that a narrow trade ‘prep’ period could be created to run for a limited time to allow business to acclimatise to new rules. Although not an extension, it offers tentative hopes that a cliff edge could be avoided.

Finally, last week’s leaked HMT document on how government debt could exceed £300bn, coupled with the ONS indicating that the economy contracted by 5.8% in March, has shone a light on the state of the public finances. Our public affairs lead, James Dowling, touched on this in The Telegraph last week, but there is an obvious (and urgent) need for a holistic look at tax policy and where gains can be made. Pensions, inheritance, and stamp duty changes are areas which need reform, but carry political risk. While manifesto commitments to maintain the triple lock and income tax levels will further restrict manoeuvrability (or need to be broken).

In the same vein, any cutting of spending carries risks. It is clear that after nearly a decade of austerity, there are little gains from further public sector cutting – and potentially less political appetite. The one big area the Treasury identified – freezing public sector pay – looks doomed after Johnson came out unequivocally against it.

These three issues are the medium-term challenges facing No. 10 (notwithstanding the current crisis). They offer a platform for Johnson to lay the foundations on which his tenure will be built, and fundamentally they align with his political raison d’etre of: rebalancing of the economy, upskilling the nation, and ‘getting Brexit done’.

 

 

First published in our weekly Political Capital newsletter
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