IT is difficult to think of any worse circumstances under which to deliver a Budget. That would apply to a seasoned Chancellor let alone someone who has only been in the job ten minutes. But our new man oozed self-confidence and there were two positive factors for Rishi Sunak to take into account as he took to his feet. 

First, the Bank of England had cut interest rates by one half of one per cent and enhanced the banking system’s ability to introduce other measures to assist individuals and businesses struggling as the impact of Covid-19 intensified.

Second, this will not be the only Budget statement this year. We can expect both a full statement on the public expenditure plans and another Budget per se, as the year progresses. Some procrastination on other topics was excusable. 

Despite the inevitable focus on mitigating the effects of the virus it is still essential to ask questions about the macro and the micro implications of this Budget. The macro relates to the overall state of the economy, past and projected, along with the budgetary “stance”. The micro considers more the individual measures announced, including changes in taxation or patterns of expenditure. How do these relate to the needs of the economy and stated Government objectives? 

For plausibility it was essential for this Budget to include measures to help achieve the Government’s target on reducing CO2 emissions and to counter the growing menace of flooding. 

Consider first the actions related the adverse effects of the coronavirus. Here action was necessary to shore up the (what we hope will be relatively short-term) impacts on both the supply and demand sides of our economy – in addition, of course, to resource availability for the NHS. 

The measures announced by the Chancellor and the Bank of England appear sensible and substantial. On the demand side, individuals whose jobs are affected will receive rapid financial support, hence minimising the hit on consumer demand. On the supply side all small and medium scale enterprises should receive considerable assistance, easing costs – via rate relief, etc – alongside access to low-cost credit and loan guarantees. 

The total cost of virus-related measures is estimated at £30 billion, but even this will not prevent shrinkage of productive capacity and consumer demand. We must hope that these measures will help cope with short-term pressures and minimise the longer-term impact.

Inevitably the Government deficit will rise in the coming year. However, Mr Sunak still committed to staying within the fiscal rules included in the last manifesto. He confirmed that the Office for Budget Responsibility (OBR) was forecasting a current account surplus in each of the next five years and an overall level of Government debt lower at the end of the Parliament than now; albeit with the overall Government deficit rising for a period before it fell back. 

The OBR forecasts for GDP growth were made before the virus risks materialised, and they are still very disappointing. Growth was expected to be very weak this year, then to accelerate a touch in 2021, before averaging just 1.4% in the following three years – with the OBR forecast for productivity growth revised down again. 

This is where the Government hopes for a major positive impact from their massive commitment on infrastructure spend. It had been pre-announced that the Treasury would increase funding for infrastructure projects to the highest level in real terms since 1955 – more than £600bn over the five-year term.

This was a massive positive for the Chancellor to throw into the mix and includes major increases in funding for R&D investment plus substantial new streams of funding for broadband, railways and roads. The expenditure, we are told, is to be well distributed geographically. It was suggested that the OBR believes this major boost to investment could result in productivity being 2.5% higher than now at the end of the Parliament. We shall see.

There were also more funds for flood protection and climate change mitigation measures – forests and peat bogs, red diesel subsidies abolished for most sectors (not farming) and more charging points for electric vehicles. More detail will come in the fullness of time.

Inevitably emphasis was on the short-term risks of the coronavirus. We must welcome the efforts to shore up supply and demand, and hope the impact proves to be relatively short-term. It is good news that this year the fiscal stance has been eased markedly, alongside that cut in interest rates. 

This was very much needed. But fiscal credibility and sustainability are also critical and hence the retention of the fiscal framework, at least until a review is completed in the autumn, is another positive. 

There will be a substantial feed-through of funds to Scotland via the Barnett formula, with more big tax and spend decisions required. A final thought is that Mr Sunak pledged £1.5bn over five years to further education. Similar commitment to FE in Scotland must be a priority.

Jeremy Peat is Visiting Professor at the University of Strathclyde