PROSPER MAGAZINE: DIGITAL EDITION
BLACK COUNTRY 2.0
AN ECONOMIST’S ANALYSIS FOR BLACK COUNTRY BUSINESSES
Ian Jackson is a Senior Lecturer in Economics and Finance at the University of Wolverhampton Business School, Prosper asked for his views on the recent Spring Budget and how it will continue to provide an economic bridge to better economic times later in the year for many businesses in the Black Country.
The Covid-19 pandemic has been the most severe peacetime external shock to the British economy in over 300 years as the various lockdowns have triggered recessionary pressures.
In 2020, GDP in the UK reduced by 9.8% which is the largest decrease since the Great Frost of 1708-09 when freezing weather conditions for three months disrupted transport, food supplies and inhibited all types of economic activity.
After over a year of severe coronavirus restrictions, the 2021 Budget in March was an opportunity to open the economy especially given the hugely successful outcomes of the ongoing vaccination programme. The stakes could not be higher given the economic dislocation to every aspect of daily life from education and health to travel and leisure.
Of course, over the past 300 hundred years, there has been an enormous amount of economic thinking to guide Rishi Sunak, the Chancellor of the Exchequer. From Adam Smith’s “Wealth of Nations” in 1776 to John Maynard Keynes’ “General Theory” in 1936 economic ideas have been bountiful even though an agreement between economists has been in short supply.
The main features of the 2021 Budget include extending the furlough scheme until September 2021 financed in part by borrowing a record £355 billion this year; income tax changes that are expected to raise £8 billion annually by 2025 and other policies designed to boost the digital economy and infrastructure projects as well as initiating the first steps towards reviving areas including sport, recreation and the arts.
These are essentially Keynesian policies of deficit financing in order to stimulate aggregate demand in the economy. Keynes would probably have agreed with much of the fiscal stimulus not least because he was the first chairman of the Arts Council. However, much of anticipated success depends on Government debt repayments once the recovery is underway and also what happens to the Bank of England base rate which is already at an all-time low of 0.1%.
In broad terms, the 2021 Budget will continue to provide an economic bridge to better economic times later in the year for many businesses in the Black Country. Life has been tough for sectors such as hospitality and this set of policies should provide much-needed confidence that the whole economy will re-open principally in the sectors such as construction that tend to lead a recovery.
There could have been more details on the transition after the furlough scheme ends especially for small firms, new start-ups and those businesses such as retail that have struggled and may not survive at all. There was precious little on regional imbalances as well that must be corrected if there are to be Black Country employment opportunities beyond the short term.
Also, more working from home has effectively brought forward work patterns of the future, so the 2021 Budget could have developed even more along these lines and combined more purposefully with the long-term green agenda that could boost manufacturing in the places such as Wolverhampton and Walsall.
Overall, while some free-market economists would disagree strongly with the scale and scope of the 2021 Budget, the intentions to help the economy are in place nationally even if less so regionally and locally. For the time being, we should remain confident of a moderately strong recovery after the first “voluntary” recession in our history albeit as part of an attempt to prevent the worst effects of Covid-19.
Only once the recovery is underway and some level of normality resumes, will we have to work out fully how and when to pay for the calamitous events of the past eighteen months.