Why Sunak says he will be 'open and honest' over the Budget

Faisal Islam
Economics editor
@faisalislamon Twitter

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The massive shrinkage of the UK economy, by just under 10% during 2020, is without precedent.

It is an unimaginable economic shock in all normal circumstances, though unsurprising given the pandemic and shutdowns.

The government's plan is to provide a roadmap out of restrictions in a fortnight.

The Chancellor will then announce an overall economic recovery plan at his Budget in early March.

The first announcement will seek to balance the race between virus and vaccine with the profound economic stress being experienced.

The Budget then has to further balance the need for ongoing forms of economic support with record public spending.

In my interview with him this morning he reiterated strongly that the Budget would be a moment for him to be "open and honest" with the British people about "the need for sustainable public finances in the future" and "exactly what that means".

The Budget will be a "giveaway" budget in the coming year with plenty of renewed economic support. But it will also map out a road back to sustainability involving some medium-term tax rises.

The Chancellor today chairs the G7 finance ministers in a video call, including new US Treasury Secretary Janet Yellen.

Top of the agenda is digital tax and green finance. Both seem to offer a domestic source of tax revenue, not just here in the UK. Rises in corporation tax, and freezes on income tax thresholds also offer low political pain for yields to the exchequer of many billions.

The chancellor was also alive to the basic comparison in 2020, of having run an economy with the biggest economic hit during the pandemic-afflicted year.

He rightly to pointed to some differences in the accounting in statistics for health and education.

But some of that effect has reversed. Indeed the UK has also chosen to measure the contribution of, for example, the Test and Trace scheme in a unique way in the latest figures.

The broad picture is of an economy which was at the lower end of international comparisons.

The general picture is that those countries with most cases and deaths from Covid, also had the most severe economic hits.

What really matters though, is what is happening right now. The vaccine is the understandable source of the Chancellor's "cautious optimism" for 2021.

The economy did grow in December, but it is certainly contracting again in the renewed national lockdowns. But if vaccinations continue to beat down the virus and its variants, the bounce back after spring could be quite impressive.

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