Misery. Misery. If you listened to Chancellor Rishi Sunak’s Spending Review on Wednesday, that is pretty much all you would have heard . The response to Covid-19 has cost a fortune. According to data from George Cooper at Equitile Investments, we have spent in the region of £1m per what statisticians call “quality-adjusted life years”. That’s before we start on the less obvious costs (eg, crime and falling cancer referrals). Our debt-to-GDP ratio is heading for 100% by 2025. We will borrow something in the region of £400bn this year. That’s 19% of GDP, the most ever during peacetime. The UK economy will end this year 11% smaller than it was expected to. By 2025 GDP will still be 3% smaller than it was forecast to be pre-pandemic. Unemployment is going to hit 7.5% (up from 4.8% now). The UK’s “economic emergency has only just begun”, said Sunak. Sounds awful, doesn’t it?
Good news. It isn’t nearly as bad as it could have been – and it might not be anywhere near as bad as Sunak seems to think. It’s worth remembering that the OBR (Office for Budget Responsibility) has been far too negative on growth every quarter so far this year and that the latest lockdown is not having anything like the impact on activity the first had. Most importantly, this is not a normal recession. It was policy-created. It mostly happened in one six-to-eight week period in the spring and it will not last beyond the end of the year (in his misery it is almost as if the chancellor had forgotten that we are due to start vaccinating our over-80-year-olds in a matter of weeks).
Most unusually of all, it has left the majority of people in bizarrely good shape – retail spending is now higher than at this time last year. There is unpleasantness ahead in that unemployment number, but nonetheless, as the end of our odd series of rolling lockdowns releases both cash and creativity, the bounce back should be spectacular (maybe buy some cruise ship shares). This economic emergency is not just beginning. It is just beginning to end. That said, you cannot relax. 2021 might be a good time to set about making new money. It might not be such a good time when it comes to hanging on to money you have already made. The detail out on Wednesday told us that getting rid of the deficit will need tax rises or spending cuts of £27bn and £102bn. Two cuts were in the review – to the international aid budget (from 0.7% of GDP to 0.5%) and in the form of a freeze to some public sector pay (an effective cut after inflation). Everyone was outraged – it seems there is no appetite for “austerity” of any kind. So tax rises it is.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
These will be small. No one wants to derail the recovery and raising enough to make a difference would mean raising income tax across the board. No one wants to do that either. But you can expect to see measures targeting wealth, and specifically capital gains (taxing “the rich” is politically OK right now). So do as Sunak suggests, and prepare for that. Britain’s bosses already are: the FT reports that they are moving fast to sell shares now and lock in current low capital gains rates. I’m not sure if that is quite what the chancellor meant when he said we should prepare for tax rises. But if you have substantial gains to crystallise, you may want to consider doing the same.
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
-
Review: Three magnificent Beachcomber resorts in MauritiusMoneyWeek Travel Ruth Emery explores the Indian Ocean island from Beachcomber resorts Shandrani, Trou aux Biches and Paradis
-
Should your business invest in a VoIP phone service?Here's what you need to know about VOIP (voice over IP) services before landlines go digital in 2025.
-
The end of China’s boomLike the US, China too got fat on fake money. Now, China's doom is not far away.
-
What is the future of Royal Mail in the UK?With fewer of us sending letters and parcels, the Royal Mail is finding dealing with the nation’s post is an increasingly unprofitable and costly business.
-
What's the secret of Manolo Blahnik's success?Fashion maestro Manolo Blahnik shows little sign of slowing down at 81, and his company notched up a record financial year in 2022. What is the secret of his success?
-
Michelle Mone's "tough year of pain"Michelle Mone liked to portray herself as a working-class heroine who worked her way to the top through grit and determination. But her pedestal is built on sand.
-
Trevor Milton, the Elon Musk wannabe, is jailed for fraudThe former CEO of Nikola, Trevor Milton, has been found guilty of lying about the development of the company's electric trucks.
-
Directors should think twice before waiving limited liabilityShould small-business directors ever provide a personal guarantee in return for bank finance?
-
Why Russia's economy is doing better than predictedSanctions were supposed to strangle Russia’s economy, but it seems to be thriving. What’s going on?
