Associate Director Fraser Raleigh gives an overview of new Chancellor Rishi Sunak's first Budget

Rishi Sunak’s first budget as Chancellor, just four weeks after being unexpectedly thrust into the job and with the growing threat of coronavirus looming large in Parliament, was an attempt to inspire both short-term and long-term confidence in the UK economy through big spending increases.

There was little option for the Chancellor but to devote a significant portion of his statement to outlining the government’s response: a £30 billion fiscal stimulus to tackle the impact on the NHS and the economy, with a promise to provide the NHS with “whatever it needs, whatever it costs” to research a vaccine and support staffing levels.

With the Bank of England announcing an interest rate cut to 0.25% this morning, the government set out its plan to respond to the prospect of up to a fifth of the working age population being off work at any one time. At the centre was a commitment that the government will cover the cost of up to 14 days sick leave for firms with fewer than 250 employees. An extension of statutory sick leave, a government-backed loan scheme, and sweeping cuts and exemptions to business rates relief to shore up the high street were also added to the package.

Away from coronavirus, this was a Budget designed to look and feel very different to a traditional Conservative budget after a decade of austerity and a large majority. Indeed, this was the sort of high-spending programme that would have been unimaginable to hear from Philip Hammond or George Osborne. And while Sunak confirmed that his plans will be delivered within the fiscal rules set out in the Conservative manifesto, he left wiggle room with a review of the current fiscal framework, to report back in the Autumn.

As expected, the headline spending announcements were focussed on investment in infrastructure, with additional money for roads, rail and broadband, as well as a review of the Treasury Green Book rules which are seen by many as skewing investment decisions away from already underfunded parts of the country.  

On tax, Sunak confirmed the trailed increase in the National Insurance threshold to £9,500 and an increase in the Employment Allowance to £4,000 a year, while reducing - but falling short of scrapping - Entrepreneurs’ Relief through a cut in the lifetime limit to £1 million, from £10 million, arguing that the scheme had become “expensive, unfair and ineffective”. Low hanging - but politically controversial - fruit was left unpicked, with all alcohol duty and fuel remaining frozen for the next year.

In his fourth week in the job, Sunak will be relieved to have navigated the pitfalls of his first Budget statement. But the real risks come now, both in the small print behind the giveaways and the fact that the forecasts of downgraded growth from the Office for Budget Responsibility do not take into account the economic impact that coronavirus is expected to bring. 

When the Chancellor returns to the Commons with his next two set piece moments, the conclusion of the Spending Review in July and the Autumn Budget, he may find himself having to make far harder decisions than turning the fiscal taps back on today, particularly if the ongoing trade talks with the EU - barely mentioned in his statement - show little sign of resolution.