ITV News Business and Economics Editor reports on the national debt and the economic recovery
The economic recovery was well underway even before restrictions had begun to lift in earnest.The latest data from the Office for National Statistics show that activity picked up significantly in March as children returned to school.Shops were still closed but households and businesses demonstrated they are well-adapted to lockdown restrictions.Output grew stronger, by 2.5%, in March. Indeed, the UK economy only contracted 1.5% in the first three months of 2021 - a performance that was so much brighter than had been expected.
The recession has hit the youngest and those on the lowest incomes the hardest, ITV News Business Editor Joel Hills reports
“The economy is getting back on track and our plan for jobs is working,” was the chancellor’s take.The Coronavirus Job Retention Scheme has been more successful at keeping people in employment than anyone dared to imagine when Rishi Sunak launched it last March.
Chancellor Rishi Sunak discusses the latest GDP figures with ITV News Business and Economics Editor Joel Hills
The level of unemployment has risen but not on anything like the scale that had been feared.The Bank of England estimates that around 3 million people are currently still having their wages paid by the taxpayer but the outlook has improved to such an extent that the Bank expects “the majority” to return to work.
Will all restrictions be lifted on June 21?
Of course, the cost of all the government grants, loans and tax cuts that have been directed at households and businesses has been enormous.
Borrowing in the year to end of March hit £303.1 billion, its highest level since the Second World War.
Our stock of national debt has also jumped dramatically. At the end of March it stood at 97.7% percent of GDP, the highest level since the early 1960s.
With the economy recovering strongly the outlook for the public finances is improving but such high debt levels do leave the UK extremely vulnerable to interest rate rises.
Are tax rises inevitable?
The chancellor’s current plans should just about stabilise the level of debt in the next few years but if his ambition is to reduce our debt mountain he’s not saying so.
“[the level of national debt] doesn’t worry me as it is,” Rishi Sunak told me, “as I said at the Budget, given the economic uncertainty, it was too soon to set out very clear, precise fiscal targets. In the autumn we will have a better sense of things and we can start to do that.”
The chancellor has already pledged to “always balance the books,” he may also decide that he needs to reduce debt as well as borrowing.
Depending on how robust the recovery proves, he may struggle to do both without raising additional taxes, above and beyond those rises he has already announced.
Does Rishi Sunak worry about the national debt?
The young and the low paid have bourne brunt of this recession, they are more likely to have been furloughed and more to have found themselves out of work.I asked Rishi Sunak if he would commit to the principle of ensuring that older generations and those on higher incomes will shoulder the burden of any further tax hikes should he deem them necessary. He didn’t.“If you look at the figures, those on the lowest incomes have seen their incomes protected the most by this government during this crisis, we’re also raising the national living wage this year, above inflation,” Sunak said. “And on young people, schemes like Kickstart are so important.”As long as the government’s roadmap out of lockdown continues to plan, the economy is expected to continue to grow strongly, this year and next.
Will support be available for as long as restrictions are in place?
At the end of March, the economy was 8.7% smaller than it was before the pandemic. The Bank of England forecasts that the lost ground will be made up before the end of the year.Whether or not that forecast comes to pass will depend on the path of the virus and the ongoing impact of Brexit.According to the ONS, trade in goods between the UK and the EU was down 14% in the first three months of this year. Over the same period trade with non-EU countries was flat.“Trade with the EU has rebounded strongly from January, which is comforting, it’s heading back to more normal levels” said Rishi Sunak. “We always said there would be a period of adjustment, that’s why we’ve provided hundreds of millions of pounds for companies to help them with the adjustment but also to help them take advantage of the opportunities of Brexit, whether that’s freeports or vaccine regulation or new trade deals”.It’s a reminder that this year the economy faces two “shocks”. The response to COVID, for perfectly understandable reasons, continues to get more attention than Brexit but, in the background, the impact of the new red-tape and paperwork continues to be felt.
Watch the full interview with Chancellor Rishi Sunak