Budget 2021 – Recovering from Covid-19

This briefing sets out in twelve steps what the Budget 2021 should do to ‘build back better’, level up the economy and help the country to recover from Covid-19.

Briefing published on 26 February 2021 by Paul Swinney

The recent large fall in Covid-19 cases and the rapid roll out of vaccines, both of which paved the way for the Prime Minister’s roadmap for lifting restrictions, give the Chancellor space to set out what a recovery plan from the pandemic looks like, and the policies needed to help achieve the key manifesto pledge of levelling up.

This briefing sets out what the Budget should do both to ‘build back better’ and to level up the economy.

Weathering the storm

The first job for the Chancellor is to extend support for businesses and workers who continue to be affected by restrictions until it is safe to open the economy up once more. To do this he should:

  1. Boost Universal Credit: As people are made redundant and lose income they cut their spending, reducing even further the amount of money circulating in local economies. This has a knock-on negative effect for the economy, putting even more jobs at risk. To minimise this, the Government should make permanent the temporary £20 uplift to Universal Credit and consider increasing it to be in line with other welfare states in Europe.
  2. Extend the Coronavirus Job Retention Scheme (CJRS) – furlough – until social restrictions are lifted: The CJRS has been crucial in supporting workers since March 2020, preventing even higher rises in unemployment and ensuring money kept circulating in the economy. As such, as long as lockdowns and other forms of social distancing restrictions severely restrict trading, the CJRS should continue to operate.

Sustaining the recovery

Centre for Cities’ analysis suggests that most cities should bounce back strongly from the economic impacts of Covid-19. The Budget must put policies in place to encourage this and deal with the fallout from the pandemic. It should:

  1. Extend support available to people who have lost their job to retrain: The complete shutdown of certain sectors of the economy makes it even more difficult for people who have lost their job to find new opportunities. While it is welcome to see that the recently introduced Life Skills Guarantee offers a free college course for anyone without A-levels or equivalent qualifications, the Government should extend this initiative and offer free courses to anyone who has lost their job in the past year, even those who already have A-level or equivalent qualifications.
  2. Support job creation in labour-intensive industries, particularly where they contribute to other policy ambitions: The Chancellor should set out support for job creation in industries that are labour intensive where this overlaps with over policy goals. The most obvious is the retrofitting of homes. The existing Green Homes Grant has been too short term and has been hampered by delays in payments, both of which appear to have discouraged suppliers, and has led to a large underspend. To rectify this the scheme should be extended for a 10-year period to give certainty, create sustainable jobs and have an impact on the UK’s carbon emissions. Other examples of these industries are education and social care: they too could employ more people with greater funding commitments from government.
  3. Consider a ‘Spend out to help out’ voucher: Once the vaccine is rolled out, social restrictions lifted and the economy reopens, the Government will need to consider whether additional support is needed to encourage people to go out and spend. If required, this could build on the ‘Eat out to help out’ scheme from last summer and offer each adult a ‘Spend out to help out’ voucher of £100 to be used on the high street.
  4. Encourage public transport use through an advertising campaign: The Government was rightly swift in discouraging public transport use as Covid-19 swept the country. Getting people back on to public transport, when safe to do so, will be important for both the functioning of the UK’s city centres and for preventing any further deterioration in air quality that Covid-19 has caused in many places. To do this an advertising campaign equal in weight to the one of spring 2020 that told people not to use it should be launched to help ridership recover.

Levelling up

Covid-19 has understandably derailed the Government’s flagship domestic policy of levelling up. With the next general election scheduled in three years, that means that the Government needs to set out what it is going to do to achieve levelling up if these polices are to start to have an impact before the country returns to the polls. The Budget should deliver on levelling up by:

  1. Investing in skills: To level up, economically weaker parts of the country need to become more attractive to high-productivity businesses. The single most important change that can help them achieve this goal is investing in the skills of the people currently living in their local area, in particular those currently without any formal qualifications. The recent Further Education (FE) White Paper set out how the Government intends to improve technical education and take up. The Budget now needs to provide the adequate financial backing to reverse the cuts the FE sector has experienced over the last decade.
  2. Creating a £5 billion City Centre Productivity Fund: Despite the impact of Covid-19, city centres are likely to play an ever-larger role in the national economy in the coming decades. Some city centres in the North and Midlands, such as Birmingham and Manchester, have gone through a renaissance in recent years, attracting many thousands of high-paid, high productivity jobs. But the role of their centres their economies is still much smaller than the role central London plays in the London-wide economy. This limits the prosperity they bring to their wider city regions. And many other city centres have also struggled. To address this the Chancellor should announce a £5 billion City Centre Productivity Fund aimed at making city centres more attractive places for high-skilled companies to do business.
  3. Investing in transport in big cities: Congestion is increasingly a barrier to further growth in the largest cities outside London. As previous work by Centre for Cities has found, improving investment in the transport infrastructure of these places would help create job opportunities in the short term and tackle congestion and pollution challenges and stimulate economic growth in the longer term. This will require both investment from national government and action from local government, such as the introduction of congestion charging in city centres.

Long-term institutional reform

The Government’s radical plans for reform have been understandably stalled by Covid-19. The Chancellor should use the Budget as an opportunity to set out a new roadmap for institutional reform by:

  1. Pressing on with devolution: Levelling up will not be achieved by Whitehall alone. It will need action from local government across the country. The Budget should put local government on a strong, sustainable financial footing, ready for the task ahead. And the Chancellor should make clear the Government’s ongoing commitment to devolve by setting a date for the publication of the long-awaiting devolution White Paper. It should include devolution of powers and the reform of local government to create institutions that are able to use these extra powers to effectively improve the opportunities available to people around the country.
  2. Investing in innovation: The Government has previously set out its intention both to spend more money on research and development and to spend more of this money outside of the Greater South East. The Chancellor should set a date for the publication of the R&D place strategy that will guide how this money will be spent.
  3. Set the publication date of the review of business rates: The review of business rates has been postponed until the autumn. It should not be delayed any longer. The Chancellor should set a date so reform for the business rates system can finally begin in earnest.

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