At the end of Boris Johnson’s first PMQs since returning to work, he confirmed what many had believed, that there would be no return to austerity to deal with the gaping hole in Government finances.
When Boris was Mayor of London he was not enthused with the austerity policies and now he is Prime Minister, he does not want them repeated. As I indicated in my Q&A session with Quantuma on the 1st May, there are three reasons why the Government was unlikely to repeat the austerity drive.
First, as evidenced by the result of the 2017 General Election, the public’s appetite and indeed acceptance of austerity has worn thin which is why no party was proposing this in the 2019 General Election. Secondly, the market for Government bonds has remained extremely buoyant with lenders prepared to accept negative interest rates to ensure security of their assets.
Thirdly, tax as a percentage of GDP in the UK has been creeping up towards a 40 year high and therefore the room for further tax rises without further damaging the economy is limited.
This does not mean that there will not be no tax rises. At the Q&A session I presented a list of tax reliefs that may be curbed to close the gap in the public finances. However, the main point is that major tax rises are off the table. The Government will be looking to close the gap with a rapid bounce back of the economy and growth that will increase tax revenues in due course, whether this strategy succeeds remains to be seen.