Chancellor Rishi Sunak warns of ‘tough choices’ to address public finances – business live

Time for a recap.

Chancellor Rishi Sunak has warned that there are tough choices ahead to address the increase in borrowing caused by the pandemic.

Appearing before the Treasury Committee, Sunak said he agreed with the Office for Budget Responsibility that the UK public finances are not on a sustainable trajectory.

Sunak told MPs that the UK can’t ‘tax its way to prosperity’, while also warning that public services need to be financed.

Yesterday, the OBR predicted the UK will rack up its biggest budget deficit in peacetime, at over £300bn this year. Sunak said he is keen to get the public finances into line in the medium term, warning that interest rates won’t remain at such record lows forever.

[Not that there’s an immediate crisis, with investors paying to lend to the UK this morning]

The chancellor said the shock of the pandemic, relatively soon after the financial crisis, has implications for fiscal policy.

This is the second ‘once in a generation’ shock we had in 10 years, and that therefore makes you think, you know, (that) what you do with public finances in ‘good’ times may need to be a bit different.”

The chancellor tried to calm reports that he’s planning a raid on the wealthy by changing Capital Gains Tax, having just ordered a review.

Sunak was speaking as some UK firms began to pass his VAT tax cut on:

He also warned struggling UK businesses not to expect a bailout. Taxpayer’s cash will only be used to rescue firms in exceptional circumstances, for companies with a strategic importance.

“I’m not completely persuaded of the scale of the problem at the moment. The simple reason is that we know corporate debt levels in the UK were in a relatively healthy place coming into this crisis,”

The chancellor also faced criticism for not providing more support for women, and for not even mentioning childcare once during last week’s Summer Statement.

But he insisted that his latest £30bn package, including VAT cuts for hospitality, would help women workers.

Sunak also conceded that his blanket £1,000 bonus for companies who bring back furloughed workers could be inefficient. He also agreed that the temporary Stamp Duty tax cut would end up in the pockets of people who would have bought or sold a house anyway – but insists it’s still worth it, to get the economy motoring.

He also disappointed MPs who urged him to help the estimated million people who are excluded from his efforts to support self-employed workers, saying he was looking to the future.

In other news today:

Finally, Mel Stride MP asks Rishi Sunak what his ‘realtime data’ is showing, about how people are reengaging with the country.

It’s sadly too early to tell, the chancellor replies.

He says that around the world you’ve seen an initial jump, then a drop back,then a slow and steady build, at different rates in different countries (or even in different States in the US).

In the UK, activity is still “quite a bit down on last year” since the economy reopened, Sunak says, adding that ‘habits have changed”.

And he plugs his “eat out to help out” scheme, saying the subsidised meal deal is designed to generate a behavioural change, given the UK economy is heavily reliant on consumer spending and consumption.

Without confidence, we don’t have that consumption.

And that’s the end of the hearing.

Steve Baker MP now challenges Rishi Sunak over yesterday’s fiscal sustainability report from the Office for Budget Responsibility. It predicted Britain’s budget deficit will hit a peacetime record this financial year (someway north of £300bn).

Q: The public finances are not on a sustainable trajectory, are they?

Rishi Sunak agrees that they are not. That’s been the conclusion of every report the OBR have done.

The government is right to borrow now, given the crisis, but it’s important to have sustainable public finances in the medium-term, the chancellor says prudently.

He warns that interest rates won’t necessarily stay as low as they are today, and there’s an issue of whether it’s fair to pass debt onto future generations.

We seem to be having these ‘once in a generation’ crises with greater regularity, Sunak says wryly. It’s the second one in barely a decade (a point the OBR also made yesterday).

The chancellor has repeatedly resisted commenting on future tax changes — but he did warned of tough choices ahead earlier in the session:

Steve Baker then asks chancellor Sunak as to whether the UK is already at its ‘taxable limit’.

Rishi Sunak sways away from this, but puts his finger on the dilemma the government faces:

Fundamentally we don’t tax our way into prosperity. We want people to share more of their own money.

But we also have a lot of demands on public services, and they need to be funded.

Labour MP Siobhain McDonagh then challenges Rishi Sunak over his earlier comment that he couldn’t mention childcare support for women specifically during his Summer Statement.

McDonagh says she “bridled” when the chancellor suggested he “didn’t have time to mention women in your 22 minute statement”

We are 51% of the population. We are more likely to lose our jobs, and to not do the hours we normally do.

What do you say to people who are on unpaid leave because they can’t get childcare, McDonagh demands. She cites a constituent, named Winnie, who is on unpaid leave from Marks & Spencer because she can’t get childcare.

Sunak insists that he meant there wasn’t time to mention childcare, not women at all – and reiterates that the ‘eat out to help out’ scheme will benefit women, as they are disproportionately hurt by the crisis in hospitality.

Conservative MP Julie Marson challenges Rishi Sunak about rising debt levels among UK firms due to the pandemic.

Q: Are you comfortable with the idea of bailouts, and picking winners?

I’m not, the chancellor replies firmly, declaring:

It’s not something I think the government should get into the habit of. It’s not my money, it’s the taxpayer’s money.

As such, a bailout for a struggling UK firm who can’t arrange a private sector rescue should be “exceptionally rate”, Sunak insists. There should be a high bar — only when a company has strategic value and has a sustainable future.

And if we reach this “last resort”, existing investors should also share the burden – with no “free ride” on the taxpayer.

Q: Is the £30bn package announced last week enough to protect jobs, or should you have done something more ambitious given the risks, especially to younger workers?

Rishi Sunak replies that he’s particularly worried about youth unemployment. There’s a great risk of scarring – losing contact with jobs market at a young age can cause damage for many years.

That’s why he’s launched the £2bn Kickstart Scheme, letting employers to hire unemployed young people aged 16-24, using government funds to pay them the national minimum wage for 25 hours a week.

Labour’s Rushanara Ali now challenges Rishi Sunak about the untargeted nature of his £1,000 job retention bonus.

Won’t this mean that companies will lay off some staff who may have risked their lives during the pandemic, so they can bring other, furloughed workers back to get the bonus?

Sunak brings out his attacking shot again — who would Ali like to see excluded from the scheme?

She’d like to see an impact assessment, chancellor.

Sunak then concedes that there is deadweight in the scheme – inevitably, given the government is trying to act quickly.

Then he outlines how small businesses have been the main beneficiaries from the furlough scheme, so a bonus of a few thousand pounds for bringing staff back will help.

Q: Last week’s summer statement showed the government is spending £15bn on PPE equipment – will we get value for money?

The chancellor says the Treasury knows it must be “prudent with taxpayers money”, even as the government acts with pace to address the crisis.

Our columnist George Monbiot has written about concerns over the government’s coronavirus contracts here:

Rishi Sunak is then asked about fiscal sustainability — and his views on the deficit.

The chancellor cites a famous paper from Carmen Reinhart and Kenneth Rogoff which argued that running a national debt over 90% of GDP is risky.

That 90% level is probably different in an era of low interest rates, Sunak points out (reminder, investors paid to lend to the UK for three years this morning).

But he adds that any future fiscal framework would need to recognise the risk that interest rate costs could rise, pushing up the cost of servicing a very large debt load.

[That Reinhart-Rogoff paper is controversial – it was used to justify austerity after the financial crisis, before a problem was discovered in their spreadsheet)

SNP MP Alison Thewliss is challenging the chancellor about the people who are excluded from his various measures to support the economy.

Sunak agrees that he’s not been able to help everyone, but he’s now “looking forward” and putting his energy into protecting jobs and supporting the economy.

Thewliss isn’t impressed, pointing out that self-employed people who earn over £50,000 per year are excluded altogether.

Sunak says that this £50k threshold covers 95% of the self-employed — the remaining 5% earn an average of £200,000.

Q: What’s the median average?

Sunak doesn’t know.

Conservative MP Steve Baker weighs in too – Are you drawing a line, and saying you won’t make any changes to your support for the unemployment?

Sunak says he made his position clear when he announced the latest extension to the furlough scheme.

I’m not looking forward to the emails, Baker replies ruefully – a sign that his self-employed constituents are most unhappy.

Felicity Buchan MP then asks Rishi Sunak why he’s launched a review of Capital Gains Tax.

The chancellor plays an extremely straight bat (hopefully England’s cricketers are watching).

He insists that it’s a “business as usual practice” to ask the Office for Tax Simplification to check that a particular measure is up to date.

In recent years, the OTS have examined various measures, including inheritance tax, tax relief, and stamp duty, Sunak says, suggesting that CGT is the “next one on the block”.

Capital gains tax is about the only one they’ve not looked at over the last few years.

But, that might not calm suspicions that the Treasury is considering reforming CGT, to raise more revenue from tax payers when they sell second homes, shares, or even works of art.

Q: Your VAT cut on hospitality ends in January — isn’t that exactly when we’ll want people to be eating out?

Sunak says the hospitality sector needs help now, adding that several other countries have launched similar plans.

Q: Why doesn’t your VAT cut cover alcoholic drinks?

Public health is a factor, Sunak replies – again saying that other countries have also excluded alcoholic beverages from the tax cut.

Conservative MP Felicity Buchan speaks next, asking Rishi Sunak if he’s missed a trick by not reforming stamp duty last week.

The chancellor replies that he is trying to ‘move at pace’ to stimulate the housing market by bringing in a temporary stamp duty holiday (on houses under £500,000).

Sunak adds that he’s worried by the sharp fall in house transactions this year, as it has a knock-on impact on wider consumption. Getting people moving house, spending on DIY, new furniture, etc, would be good for the economy, he argues.

Q: The measure is estimated to cost £3.8bn – is there are risk that we’re subsidising transactions that would have happened anyway?

Rishi Sunak agrees that there’s definitely a risk.

The change will drag forward house moves (as people rush to move house before the stamp duty holiday ends next March). That’s “exactly what we want” to see, when there’s a recession, the chancellor says. It should save jobs.

Q: Why was there no mention of childcare in your summer statement, given women have been badly affected by the lockdown?

Sunak says many sectors didn’t get a mention in his 22 minute statement.

He agrees that women are disproportionately likely to work in hospitality, so they should benefit from the ‘eat out to help out’ scheme.

And on childcare, he says nurseries received a 12-month holiday on business rates, and childcare providers are getting all their government funding even if they’re closed.

That equates to 50% of revenue, he says.

Labour MP Angela Eagle asks Rishi Sunak about concerns that his jobs retention scheme, and the ‘eat out to help out’ offer, are badly targeted – and was challenged by the head of HMRC as being bad value.

Rishi Sunak replies that he firmly believes the £1,000 bonus for taking back furloughed staff will make a difference, particularly for lower-paid workers.

I’m determined to do what I can to protect as many jobs as possible, he insists.

Q: But wouldn’t a targeted scheme be more efficient? Why not focus on the sectors that are most struggling?

Sunak says his original furlough scheme had faced similar criticism when launched, but is now recognised as successful.

It’s not practical or feasible for the Treasury to assess companies across the UK, and decide which need help, the chancellor replies. Who do you think shouldn’t get help?

Eagle doesn’t let the chancellor turn the tables, but instead cites aerospace as a sector that deserves particular support (Airbus, for example, are cutting 1,700 jobs in the UK).

Sunak points out that aviation is facing a global crisis, beyond the influence of the UK government alone.