Editor's letter

Rishi Sunak: buy a house, do it up and then go for a meal

The chancellor has been on a spending spree. Will it help?

This week, chancellor Rishi Sunak unleashed yet more spending (another £30bn-odd) to help the UK get over the worst effects of the coronavirus lockdown. We look at the list in more detail in this week's magazine, but in short, Sunak wants us all to move house (he cut stamp duty up until 31 March), do those houses up (£2bn in energy efficiency grants are being dished out), and then go and eat out more (you’ll get a tenner off your dinner on Mondays to Wednesdays in August at participating restaurants). Meanwhile, the leisure industry is benefiting from a cut in VAT to 5% (a big saving that may or may not be passed on to customers – I’m betting mostly not), while all employers will be encouraged to keep staff on with a £1,000 bonus for any furloughed staff who return to work until at least the end of January. 

It doesn’t matter who gets the money

So will any of this help? Paul Johnson, director of the Institute for Fiscal Studies (a think tank that everyone pays attention to), noted on Twitter that this return-to-work bonus is payable even for furloughed employees who have already returned to work. In other words, some bonus money will go to employers who would have brought those workers back anyway.

Others made similar points about the “Eat Out to Help Out” stimulus. Maybe lots of us will rush out to take advantage, but it’s fair to argue that it’ll mostly benefit people who would have been inclined to eat out on a Monday to Wednesday anyway. The consumers might not even benefit directly. It might just subsidise existing meal deals, with the restaurant pocketing the difference. The same can be said about the cut to stamp duty. Is the buyer really going to save thousands of pounds in stamp duty, or will the seller benefit, by pushing up the price? 

But the key issue is that none of this matters. Right now, it doesn’t matter exactly who benefits from the extra money (at least, not to the government). All that matters right now is that the money enters the economy and gets moving around it. You could even argue that it’s all a form of helicopter money – paying people (or restaurants) to eat out, paying buyers (or sellers) to trade houses, paying home owners (or tradespeople) to insulate their homes – as long as they do it within a certain period of time.

What’s also worth noting is what wasn’t addressed – the scale of government borrowing required to fund all this. Britain is set to spend the equivalent of about 7.4% of GDP on coronavirus recovery packages – a vast amount. Yet Sunak’s predecessor Sajid Javid was politely given short shrift when he asked the chancellor about the implications for the deficit (this, of course, is the reason that Sunak, not Javid, is chancellor). 

The main reason the UK doesn’t yet have to worry about spending so much is because everyone else is doing it too. And with central banks all standing behind their respective government bond markets, there are no obvious signs of “bond vigilant-ism” in markets yet. But if all this spending does what it’s supposed to, then inflation will be the result. All I can say is hang on to your gold. The yellow metal hit an eight-year high against the US dollar this week. I suspect we’ll see a new record long before this year is out. 

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