The UK government is being urged to "boost it like Biden" and quadruple its crisis spending to £190bn ($264.8bn) to tackle the economic fallout from the coronavirus.
A briefing paper from the think tank the Institute of Public Policy Research (IPPR) found that the economic boost so far announced by chancellor Rishi Sunak for the year from April (fiscal year 2021/22) is worth about 2% of the value of the entire UK economy before the pandemic (2019).
It suggests that a significantly more powerful boost (£190bn), equivalent to 8.6% of the value of the economy, would deliver faster recovery, stimulate business investment to its pre-pandemic level and halve the number of job losses – without risk of causing high UK inflation.
This would be akin to the $1.9tn stimulus injection tabled by newly-elected US president Joe Biden, which is equivalent to 8.9% of the value of the US economy.
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Carsten Jung, IPPR senior economist and lead author of the report, said: “The Biden administration’s plan shows what is possible. And it highlights the scale of support needed to bring economies back to pre-crisis levels of activity, or else risk falling into a ‘stagnation trap’ – a situation of a sluggish recovery and permanently diminished growth.
"All in all, the risk of doing too little far outweighs the risk of doing too much. Joe Biden has understood this. Rishi Sunak should follow his lead."
Planned boosts by other leading economies are also significantly greater than the UK, compared with their size: up to 13% in Japan, between 3% and 4% in Canada and 3.7% in Germany (which includes the EU’s stimulus package).
The IPPR paper says that UK stimulus should be devoted to supporting businesses, workers and households hardest hit by the pandemic, restoring public services and helping the growth of sustainable, "future-proof" industries and jobs.
Failure to deliver such a boost risks condemning the UK to a “stagnation trap” with about half the rate of economic recovery. It would mean lower business investment and leave unemployment at more than 10% in spring next year – much higher than under the proposed IPPR stimulus.
What’s more, IPPR calculates that the widely-watched “debt to GDP” ratio – the total amount owed by the government, compared to the overall size of the economy – would be lower than under current spending plans. That’s because a faster recovery would mean the amount borrowed is ‘offset’ by relatively quicker economic growth, and would also generate higher tax revenues and so lower borrowing in future years.
George Dibb, head of IPPR’s Centre for Economic Justice, said: “As we approach a crucial budget, it’s clear that the UK economy needs far bolder action than the government currently seems prepared to consider. This is not the moment for caution: the risk of doing too little far outweighs the risk of doing too much."
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