UK Budget 2020 - Keynesianism for slow learners

The UK government have performed a significant fiscal U-turn, but it all might be too little, too late.   


The UK budget delivered in Westminster today marks a significant shift in UK fiscal policy. The scope of the extra funding made available to tackle the impact of the coronavirus is significant at £12bn, but even without these exceptional measures, there has been a noteworthy shift in the direction of public spending.

Firstly, while the scale of the fiscal response to the coronavirus is welcome, the channel through which this funding is being delivered are less welcome. Extending the scope of statutory sick pay and removing the 4-day waiting period is sensible but does not tackle the existing structural issues with regard to sick pay. It ignores those who don’t earn enough to be entitled to sick pay and leaves the self-employed at the mercy of an already dysfunctional benefits system.

This budget could have been an opportunity to put in a place longer-term system to deal with short term disruptions to the labour market. This could include short-time work schemes and would be of benefit to the economy when it faces other disruptions such as extreme weather events or even the initial impact of a no-deal Brexit.

Turning toward the fiscal approach of the budget overall, there has clearly been a significant change in policy. There is a significant boost to both current and capital spending over the medium term and spending per head of population is likely to return to pre-2010 levels. While this represents an end to 10 years of fiscal austerity, it does not remove the effect of these years.

Indeed, as the Chancellor of the Exchequer extolled the virtues of public investment spending as a way to counteract the troubling economic headwinds that are approaching, one could be forgiven for thinking that the age of austerity had never happened.

The truth of the matter is that recognizing your mistake after 10 years is welcome but it does nothing to repair the impact of that mistake. The lives that have been impacted by reductions in public services, the withdrawal of benefits or the absence of decent public infrastructure will not suddenly see a change in their fortunes.

While overall funding levels may be restored, the extra money required by the NHS means that most other areas of government expenditure are still operating at well below their pre-2010 levels. On the capital side, what has been lost over the last 10 years may never be fully recovered. The impact of poor infrastructure and its effects on productivity and growth have already been felt. We may begin the process of catch-up, but that will not fully make up for what has been lost already.

For Northern Ireland, todays budget announcements will represent a disappointment. All that we know for certain is that Northern Ireland’s block grant will rise by over £210m in 2021. While any increase is welcome, this is not of the scale envisaged by the New Decade, New Approach (NDNA) agreement that restored power sharing at Stormont.

That subsequent financial package that followed agreement identified £1bn in ‘Barnett Consequentials’ over 5 years for Northern Ireland. At that time, it became apparent that this £1bn was money Northern Ireland was going to be getting from the budget anyway. It appears that all the NDNA delivered was advanced notice of NI’s upcoming allowance.

The Spending Review announced for this summer will provide more detail on the direction of the block grant over the coming years, but all the indications from this budget that are that Northern Ireland should not expect anything more.

This budget represents a welcome repudiation of the austerity policies that have been in place for over a decade, but the legacy of those policies is likely to be with us for some time.   

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Paul Mac Flynn

Paul Mac Flynn is co-director of the Nevin Economic Research Institute and is based in the Belfast office. In addition to managing the Belfast office he has co-responsibility for the NERI's research programme and for its strategic direction.  

He leads on the NERI’s analysis of the Northern Ireland economy along with all research into the impact of the United Kingdom‘s departure from the European Union. Other research areas include regional productivity, the all-island economy and the future of work.

He is a graduate of University College Dublin with a BA in Economics and Politics and the University of Bristol with an MSc in Economics and Public Policy, specialising in the economic impacts of political devolution in the UK.

Contact: [email protected] or 00 44 28 9024 6214.