Chancellor Rishi Sunak will wait to see how the public responds to the “independence day” reopening of the hospitality industry in England on July 4 before deciding whether a fiscal stimulus — such as a temporary cut in value added tax — is needed to boost consumer confidence.
Mr Sunak’s fiscal statement, originally scheduled for July 9, could slip back to the following week as the Treasury assesses the state of mind of the British consumer, including data from recently reopened high streets in England. No date for the House of Commons statement has been fixed.
The more that UK consumers respond to easing of lockdown by spending rather than saving — including going to pubs — the less ministers will be inclined to cut taxes further given the £300bn plus deficit the UK is likely to run this year.
Both the number of people shopping on high streets and the amount spent slipped back last week after an initial surge in the first three days after non-essential retailers reopened on June 15, according to data collated by Fable Data.
Suraj Gohil, product director at Fable Data, said: “As the week progressed the increase in both the number of customers and spend [compared to the lockdown period] began to slow as did the average basket size, albeit remaining above lockdown levels.”
By the start of this week, spending levels on UK high streets were 40 per cent lower than on the corresponding day last year.
Mr Sunak’s allies said the chancellor takes a great interest in daily data about economic progress, drawing on his previous experience working in the hedge fund industry.
The Institute for Fiscal Studies, a think-tank, said on Friday the case for a VAT cut was “mixed”, adding that there was “little point introducing a VAT cut if continued fear of the virus, or continued social distancing restrictions, mean that firms are unwilling to cut prices or consumers are simply unwilling to spend”.
Mr Sunak’s July statement — the Treasury rejects the term “mini-Budget” — will follow a big economic speech by Boris Johnson next week, in which the prime minister will map out his plan to “build, build, build” to revive the economy.
Mr Johnson is expected to set out plans to liberalise planning rules to speed up approvals of housing construction projects. Ministers are considering the “development corporation” model used in the Thatcher government era to accelerate regeneration in areas such as the London docklands.
He is also expected to back local projects that can be delivered quickly. Cycling and pedestrian infrastructure is likely to feature prominently, alongside schemes with environmental benefits.
Mayors and local authorities in England are seeking billions from Mr Sunak in his July statement to fund cycling and public transport infrastructure.
Andy Street, Tory mayor of West Midlands, has asked the Treasury for a £614m green investment package, including £250m for a gigafactory producing electric car batteries.
Andy Burnham, Labour mayor of Greater Manchester, wants a central government contribution towards his proposed £1.5bn network of cycling and walking routes covering 1,800 miles.
Dan Jarvis, Labour mayor of Sheffield City region, wants some Treasury funding for a £270m flood prevention scheme and a planned £500m forest in northern England.
The government meanwhile announced £400m on Friday for research and development projects in the UK regions, including support for ships powered by wind turbines and 5G mobile technology.
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