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🚨*𝐍𝐈𝐄𝐒𝐑 𝐁𝐮𝐝𝐠𝐞𝐭 𝟐𝟎𝟐𝟏 𝐂𝐡𝐚𝐫𝐭𝐩𝐚𝐜𝐤* 🚨

All you need to know ahead of next week's #Budget in one... THREAD 👇

1/19
#CovidEconomics
#BudgetSpeech2021
#EconTwitter

The #Budget2021 comes at a critical time when the UK is in the middle of battling the #pandemic and the economy is substantially weakened with uneven effects at industry, household & region level.

Read the economic context to #Budget2021 here 👇

2/19
niesr.ac.uk/publications/u…

We project the UK economy to contract again in 2021Q1 due to the second wave and the winter #lockdown as well as the effects of post-#Brexit adjustment, bringing #GDP to some 11% below pre-#pandemic levels

3/19

Despite the #vaccine roll-out, the #COVID19 recession will have involved #scarring. By 2025, #GDP level is forecast to be around 6% lower compared with the pre-Covid expectations, reflecting only a gradual return to normality as well as a weaker trend related to #Brexit

4/19

Furloughed worker numbers have risen to 5-6 million in Jan 2021, nearly 20% of the workforce. Without support beyond April, #unemployment is set to rise to 7.5% - or 2.5 million people - at the end of the year, staying above...

5/19

... 4% even at the end of our forecast horizon, worse if a higher share of #furloughed workers are made redundant

6/19

Like the initial hit from the #pandemic, the pace of the #recovery will also differ across sectors, implying an important role for government policies to facilitate the reallocation of labour and capital to promote adjustment and limit long-term scarring

7/19

All regions in the UK experienced a decline in gross value added in 2020, but some have suffered more than others.
London, the South East and the South West will recover quickly.
Northern Ireland, the North East, the West Midlands and Wales suffer from longer term effects

8/19

The extreme poor in different regions are very vulnerable. Huge effects on the poorest #households are projected for the North West, while London, the East of England and the South East also have substantial increases in #destitution

9/19

The uneven effects of the #pandemic at sector, household and region level, require strong and sustained targeted #support and regional planning to limit the long-term economic and social damage from the pandemic

10/19
niesr.ac.uk/publications/c…

#PublicSector net debt will peak at 110% in 2021-22 but this follows two shocks of unusual magnitudes, #COVID19 and #Brexit. Interest rates stay low despite the higher #debt and increased levels of government debt are not an...

11/19

... immediate cause for concern given the economic backdrop. But the #fiscal framework needs urgent repair

12/19

#FiscalPolicy
#PublicDebt

voxeu.org/content/time-u…

Premature removal of #fiscal support would hurt delay the economic #recovery

In times of #crisis when output is considerably below its potential and when #interestrates are close to zero, fiscal multipliers can be quite large, meaning that any fiscal consolidation in...

13/19

...the form of #tax rises or #spending cuts might harm output more than the rise in revenue or cut in spending

14/19

#TaxAndSpend
#economy

Our recent estimates of fiscal multipliers for different #tax and #spending shocks based on @NiGEMmodel show that during ‘normal’ times tax rises are relatively less costly for GDP initially compared to spending cuts

15/19

Among taxes the most costly for GDP is #CorporationTax because of its potential negative effect on the supply side

16/19

#FiscalPolicy
#CovidEconomics

When the time is right, #tax rises should be favoured over spending cuts to limit the long-term effects of #COVID19. Among possible tax rises, income #taxes should be preferred because of the lower multiplier, especially for higher income groups that have acquired #savings

17/19

A Comprehensive #TaxReview is required considering not just arguments around the size of the tax take in the #NewEconomy but how that tax can be most effectively and equitably raised.

Tax rises can be deferred until the #health threat is largely abated and the...

18/19

...#recovery is on a firmer footing. But the framework and principles can be established now.

For full #analysis download our report here 👇

19/19 ENDS

#Budget2021
#EconTwitter
niesr.ac.uk/publications/u…