The Long View on ... the 2020 Budget

O Lucky Man !

Cardinal Mazarin (not Napoleon) valued lucky generals over skilful ones. Rishi Sunak appears to be a very lucky Chancellor indeed*.

a) He's jumped a generation to get into No 11 - without having to make any enemies to get there

b) He's arrived at the first moment in 15-plus years when, as a Chancellor, he can really open the spending taps at “£30 billion”

c) Covid19's impact on the economy is a get-out-of-jail free card from the money markets and commentators1 for spending without worrying about the consequences for now

d) If that wasn't all, the spending, growth and interest rate commentaries from the OBR were DOA this morning. So, for the first time in a decade, a Chancellor can even ignore the usual constraints on budget setting

e) The expansionary/precautionary Bank of England 0.5% rate drop this morning is an uncommon piece of political choreography since the Bank was freed in 1997

In short, a Chancellor's fantasy (I have a less wholesome phrase in mind - but we're not straying into the PM's mindset here).

What this is and isn't
The Budget is a rolling series of announcements - so more detail will emerge e.g. on planning reform later this week as well as finer details of which barrels of pork are being rolled out across the country. The postponed Spending Review will report in July - so much about how this will actually play out is yet to be determined.

This isn't the end of austerity. The Osbornian tactic of austerity was dumped last year. The consequences of a decade of austerity are "baked into the economy" as the IFS has epitomised it. Much of the spending is capital investment in infrastructure e.g. HS2. Even the apparent investment in Covid19 research is actually a long term spending exercise.

It's the menu, not the bill. The Chancellor hasn't said how all this largesse is going to be paid for. The arguments over the check will clearly come later.

The Housing is in the detail
Housing is lumped with infrastructural spending - though is regarded as less economically transformative than politically expedient by the Conservatives.

The Affordable Homes Programme of £12bn was expected and will help RPs build more housing - though this is likely to be overwhelmingly Shared Ownership and Affordable Rent. This must be viewed alongside the drop in the PWLB rate of 1% (which reverses Javid's 1% October hike - we'll that was so-oooo five months ago). Add in some dosh (£400m) to help with Brownfields in city regions and expect more building. But just a word of caution. The Affordable Housing Programme targets focus on areas of where affordability is most challenged. So eventually expect more house building (Covid19 notwithstanding) but great deal will be in the South. And the West Midland’s City Region housing deal suggests the brownfield money will probably be tied to some pretty exacting delivery targets.

RPs' cashflow will benefit from the temporary removal of the Universal Credit minimum income floor (which calculates assumed earnings for self-employed people)`- but if the virus really does isolate 20% of the workforce, then the whole system will struggle and arrears should be planned for now. This will interfere with credit ratings and disrupt the new build pipeline later on.

A bit of perspective on the £1bn Building Safety Fund to remove unsafe cladding. This sounds good until you measure up the RPs' estimated bill is £10bn.

The £650m of funding to help 6,000 rough sleepers into permanent accommodation is again positive. But will probably not go so far, because expensive Housing First approaches are now likely to be rolled out without the evaluations.

And finally, on town centres. It's understandable that a small business rates holiday is welcomed. It will help enterprises - though many occupiers have already dropped into local authority discretion anyway. But the demise of the pre-internet town centre is inevitable, and the same conditions will apply with greater force post-outbreak next year. So HMT needs to find an intervention that helps the transformation and unlocks residential options. The Government hasn't quite developed a joined up strategy for this essential challenge.

Whether Sunak's luck holds will matter for all of us - but only an hour after he sat down, it's too soon to tell about this budget. Now, if the Chancellor can avoid catching the Coronavirus as well in the next few weeks, then perhaps the Prime Minister's choice of Chancellor last month will have been beyond fortunate.

* He's pretty skilful too - asserts the Oxford PPE-ists Union.
1 P.S. The Guardian today has reported how The Chancellor has escaped the traditional kicking from the Institute for Fiscal Studies