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Welcome to our analysis of yesterday’s summer economic statement
My colleagues Carl Emmerson, Rob Joyce and Helen Miller will run through the main elements of the package unveiled in a moment. Let me start with some brief context.
This was another big package. In normal times, even in a normal recession, we would have been taken aback by the scale of measures announced outside of a budget. Up to £30 billion of measures plus £33 billion of public service spending not previously accounted for.
But, of course, this is no normal recession. It’s the deepest in history.
This was as the chancellor said the second, but not final, act in his response.
The first involved spending huge amounts – over £130bn – essentially to respond directly to the virus and preserve the economy as it was. Given the lockdown this was necessary. And being largely about giving money out was relatively straightforward. You can disburse £60 billion through a scheme like CJRS or add £8 billion to the welfare bill quite easily.
The second and subsequent acts are much trickier to deliver and get right. They need to get the balance between preserving those parts of the economy which have a long-term future and helping the transition to a new normal. They also need to actually deliver goods and services and change. That is very different from simply disbursing cash. This phase needs to get several things right.
First there’s timing, timing, timing:
Then there is scale:
Finally, there is the issue of value for money and additionality. Even in a crisis we shouldn’t ignore the basics:
I expect the next phase, in the Autumn budget, still to be looking to support a recovery. We will know more then about the progress of both the virus and the economy. This should allow for more targeted support. Perhaps more targeted tax cuts, more thought through investment programmes, more developed job support schemes. And, of course, a spending review.
The time to pay for all this will come. But not this year and not next. Our capacity to do so will depend above all on how the economy recovers.
So, our focus today, like the Chancellor yesterday, will be on this support and recovery phase. But let’s hold in the back of our minds that a reckoning, in the form of higher taxes, will come eventually.
Chancellor still spending big - and likely to be more to come
On Wednesday 8 July, the Chancellor is due to deliver a Summer Economic Update, where he is expected to announce further measures to help the recovery from the COVID-19 crisis. We will publish analysis of the Chancellor's proposals and reforms as well as an examination of the public finances on this page.
On Thursday morning at 9:30, Paul Johnson will be joined by IFS deputy directors Carl Emmerson, Helen Miller and Rob Joyce to present their initial analysis of the trade-offs that the Chancellor has made at a free online event, focusing on support for households, businesses and public services and the impact on the public finances. This event will be broadcast live on this page.
The direct cost of fiscal policy measures announced since March to address the #coronavirus pandemic stands at almost £190 billion.— IFS (@TheIFS) July 9, 2020
That's equivalent to almost 9% of what the UK economy produced in 2019–20.
IFS analysis features in this @BBCNews story.https://t.co/KTzv7Nvl10
The tourism and hospitality sectors have been particularly badly affected by the crisis.— IFS (@TheIFS) July 8, 2020
Cutting VAT and discounting restaurant meals will increase output in these sectors if businesses have the capacity to serve more customers despite social distancing requirements. pic.twitter.com/lErSRF5yGs
Given uncertainty about development of economy, jobs, virus etc feels right to me that Chancellor is clear he'll be back to do more, not trying to do everything at once. Be under no illusion - this was a big package on top of enormous interventions so far— Paul Johnson (@PJTheEconomist) July 8, 2020
Effectiveness of VAT cut and meal vouchers will depend on extent to which problem is not enough people to fill restaurants with now very limited capacity, or capacity constraints. Sure to be some of the latter so much of benefit likely to go to business rather than consumer— Paul Johnson (@PJTheEconomist) July 8, 2020
Surprising aspect of the jobs retention bonus is it's payable in respect of any employee furloughed at any point even if already back at work. You'd think a lot of this spending will be pure deadweight - going to employers who have already/would anyway bring workers back— Paul Johnson (@PJTheEconomist) July 8, 2020
He skated over it but I thought most remarkable point in Chancellor's speech was that he's provided £49bn to support public services. That's £30bn more than OBR's June estimate. Huge.— Paul Johnson (@PJTheEconomist) July 8, 2020
Our analysis of the Summer Economic Update is funded by UK Research and Innovation (grant no. ES/V00381X/1). We are also grateful for funding from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy (ES/M010147/1).