Coronavirus recovery: Even Keir Starmer doesn't want to raise taxes and warns against austerity

2 months ago 15

Sir Keir Starmer has warned that tax rises and austerity risk ‘choking off’ a rapid economic revival after the coronavirus pandemic.

The Labour leader said he wanted to model the UK’s recovery on Clement Attlee’s post-Second World War strategy to restore Britain’s ‘backbone’. 

‘In the short term, you don’t balance the books and you don’t choke off the recovery by raising taxes on the one hand or reverting to austerity on the other,’ he said.

Ahead of the Chancellor’s budget on March 3, Sir Keir told The Times that the Tories would revert ‘to business as usual’.

He said: ‘There are already obvious signs of that: council tax hikes, universal credit, the fact that we’ve got a pay freeze in the public sector.’ 

He went on to suggest that such a system had ‘inherent weaknesses’.

Labour leader Kier Starmer (pictured on Thursday) said he wanted to model the UK’s recovery on Clement Attlee’s post-Second World War strategy to restore Britain’s ‘backbone’

The argument over Britain's pandemic recovery will define the next election - currently set for 2024 - Starmer said.

The Labour leader is set to say in a speech on Thursday that the country is at a 'fork in the road,' and that the Tories will offer a return to the 'broken system' of austerity.

Instead, Starmer wants to see the country rebuild in a similar fashion to its recovery after the Second World War, and also pointed to Harold Wilson's recovery efforts and to Tony Blair's economic recovery from 1997.

He also said that it was time for his party to develop a different relationship with business after Jeremy Corbyn's leadership.

Starmer said he has drawn up plans to treat coronavirus loans in a similar way to how student debt is treated, meaning businesses will not have to repay until they become profitable.

When asked by The Times about a note that was left by Labour's out-going chief secretary Liam Byrne in 2010 that famously said 'there's no money left', Starmer said 'I think Liam has apologised for that and quite right too.'

It's important that Labour rebuilds trust with the electorate, he said, before speaking about the challenges of being in opposition during the pandemic.

The party took an early decision to adopt a position of 'constructive opposition', Starmer said, which meant supporting the government when it was necessary.

But getting the balance right is difficult, he said - defending Labour's recent record - because people want the government to succeed in its response.

The UK officially suffered its worst recession in 300 years in 2020, new figures showed on Friday - but looks set to avoid a double-dip recession after the economy stayed in positive territory in the final three months. 

The Office for National Statistics said over the whole of 2020 the economy dived by 9.9 per cent - the worst annual performance since the Great Frost devastated Europe in 1709

GDP grew by 1 per cent in the fourth quarter, better than some experts had expected, and easing fears of another full-blown slump after the historic plunge last spring. 

A recession is formally defined as two consecutive quarters of negative growth, and with blanket lockdown in place since January activity is likely to go into reverse in the current quarter. 

However, despite the glimmer of positive news, the Office for National Statistics said over the whole of last year the economy dived by 9.9 per cent - the worst annual performance since the Great Frost devastated Europe in 1709. 

It means that the pandemic effectively wiped out seven years of growth during a single 12-month period. 

The figures were announced after a Bank of England boss said the economy will bounce back like a 'coiled spring' once liberated from lockdown.

Chancellor Rishi Sunak warned that the UK is still facing a huge battle to get back up and running - again hinting at looming tax rises to heal the wrecked public finances.

And he dismissed the idea that the country is suffering worse than the rest of the world, insisting the hit is 'in line with our peers' accounting for the different ways that GDP is calculated. 

'Today's figures show that the economy has experienced a serious shock as a result of the pandemic, which has been felt by countries around the world,' he said. 

'While there are some positive signs of the economy's resilience over the winter, we know that the current lockdown continues to have a significant impact on many people and businesses.

'That's why my focus remains fixed on doing everything we can to protect jobs, businesses and livelihoods.'  

Deputy National Statistician for Economic Statistics, Jonathan Athow said: 'Loosening of restrictions in many parts of the UK saw elements of the economy recover some lost ground in December, with hospitality, car sales and hairdressers all seeing growth. An increase in COVID-19 testing and tracing also boosted output.

'The economy continued to grow in the fourth quarter as a whole, despite the additional restrictions in November.

'However, GDP for the year fell by nearly 10 per cent, more than twice as much as the previous largest annual fall on record.' 

GDP grew by 1 per cent in the fourth quarter, slightly better than some experts had expected

In an exclusive article for the Daily Mail, chief economist Andy Haldane insisted the public are 'desperate to get their lives back'

Sunak considers 'stealth tax' at Budget 

Rishi Sunak is considering implementing a £6billion 'stealth' tax by freezing personal income tax allowances in next month's Budget, it was claimed today.

The Treasury could abandon annual increases to the £12,500 and £50,000 income tax thresholds, which the Telegraph reported would see tens of millions of Britons handing over more cash to the government.

These thresholds - which determine how much a person can earn without paying income tax and which Britons pay the higher 40 per cent rate - are typically expected to rise with inflation each year.

However, if these increases don't go ahead, millions of people will be forced to pay a much higher tax rate on a larger proportion of their income.

This could amount to the loss of an annual £250 saving by 2025, it was said.

As no tax rates are being increased, this scenario is often dubbed a 'stealth tax.' 

All four sectors tracked by the ONS saw a drop in output in the fourth quarter, with the highest drop coming in the construction sector at 12.5 per cent.

However, strong 1.2 per cent growth in December, despite harsh restrictions being in place across large parts of the country, looks to have saved the economy from its first double-dip recession since the 1970s 

Activity was helped in the run-up to Christmas by a consumer spending spree and stockpiling ahead of the end of the Brexit transition period

The health sector grew by 2.4 per cent after being involved with running coronavirus testing and tracing schemes across the UK.

In interviews with broadcasters, Mr Sunak repeated his warning that he will be taking action to balance the books.

'Public finances are important and we've only been able to provide the support that we have because of a strong economy and finances coming into this,' he told Sky News.

'I want to make sure that whenever the next shock hits the country that we can also respond in the same way that will require our public finances to be put back in a strong position.' 

He also rejected the idea that the UK was being harder hit.

'I think it's important to clear up this question of our comparative economic performance actually,' he told UK broadcasters.

'We calculate GDP in a different way to pretty much every other country (...) now if you correct for that difference or look at it on a more comparable way, nominal GDP, what you find is, our performance is actually very much in line with all our international peers.' 

Shadow chancellor Anneliese Dodds demanded Mr Sunak extends furlough and business support, despite the parlous state of the public finances. 

'These figures confirm that not only has the UK had the worst death toll in Europe, we're experiencing the worst economic crisis of any major economy,' she said.

'Businesses can't wait any longer. The Chancellor needs to come forward now with a plan to secure the economy in the months ahead, with support going hand-in-hand with health restrictions.'

She called for a 'smarter furlough scheme' as the current system is set to run out in April, as well as an extension to the business rates holiday and the VAT reduction for hospitality and tourism companies.

Kemar Whyte, senior economist at the National Institute of Economic and Social Research, said: 'According to today's ONS figures, UK GDP contracted by 9.9 per cent in 2020, which is likely to be the largest annual fall among G7 countries last year.

'As a result, the level of GDP in the UK remained about 8 per cent below pre-pandemic levels, even before a third lockdown became necessary in January 2021.

'With Covid-19 restrictions expected to remain elevated until early spring, we anticipate a sharp decline in activity during the first quarter of the year.

'Nevertheless, growth will pick up from the second quarter onwards as restrictions ease on the back of a successful vaccination programme.'

Handelsbanken's UK chief economist, James Sproule, said that while the UK's GDP may look worse than other major economies, it also measures the figure slightly differently.

'If schoolchildren are not being taught, measured output falls even if teachers are still being employed,' he said.

'This approach resulted in UK GDP figures falling more sharply than others in the pandemic, but equally the restarting of schools will boost output figures in the recovery.'

Trades Union Congress general secretary Frances O'Grady called for the furlough scheme, which has supported around 10 million jobs through the pandemic, to be extended past April, when it is set to end.

'Millions of people's jobs hang in the balance,' she said. 'It's time to end the uncertainty and anxiety. The Chancellor must urgently extend full furlough support to the end of the year to keep jobs safe.

'And he must cancel the pay freeze that is due to hit millions of key workers in April. The last thing our businesses and high streets need is to have consumer spending held down when they are trying to recover.'

ING developed markets economist James Smith said the economy is likely to have shrunk by 4 per cent in January.

'The obvious wildcard here is Brexit, and we think it's inevitable that we'll see a fall in manufacturing production at the start of the year – the main question is by how much,' he said.

'Firms have struggled under the weight of new paperwork and processes, and all the evidence suggests supply chains have faltered as a result.'

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