Publication - Research and analysis

Coronavirus (COVID-19) - UK fiscal path: update - November 2020

Published: 22 Nov 2020

Paper setting out the approach the Scottish Government believes the UK Government should follow at its forthcoming Spending Review to support the UK economy and public finances as we continue to respond to the challenges caused by coronavirus.

22 Nov 2020
Coronavirus (COVID-19) - UK fiscal path: update - November 2020

As the need to suppress COVID-19 has continued across the UK, the challenge of helping businesses and people through the crisis and supporting the economic recovery has become more acute. Although the UK and Scotland face similar challenges, the Scottish Government does not have the full suite of fiscal powers to respond to these. As such, the UK Government must either increase its fiscal support, or provide the Scottish Government with the powers and responsibilities to deliver the response the people of Scotland need.

The economic outlook has worsened since we published our paper UK Fiscal Path: A new Approach in June 2020, strengthening the need for the UK Government to adopt a new long term approach. The recent resurgence in coronavirus cases, and the introduction of further restrictions to limit its spread, has slowed the economic recovery, while the continuing uncertainty around the future trade arrangements with the EU poses significant downside risks to economic activity. In addition, the economy’s resilience has significantly weakened, with many businesses and households struggling financially, particularly those in the hardest hit sectors and regions. At the same time as dealing with the challenges presented by COVID-19, the risks from EU Exit will weaken the resilience of the economy further.

With the economic outlook increasingly fragile, and as the UK Government prepares for Spending Review 2021-22, it is imperative that the UK Government provides confidence and certainty by extending its fiscal support into the next year and delaying any fiscal consolidation efforts or tax rises until the economic recovery is well underway. In the short term, suppressing the virus and supporting the economy and jobs through public spending will create the confidence which will allow the economy to recover. The UK Government should therefore go above and beyond the fiscal support extended to date and introduce a fresh fiscal stimulus of at least 5% of GDP (£98 billion). In particular, it should:

  1. Delay fiscal consolidation, avoiding a return to the austerity of the past;
  2. Increase day to day government spending to aid the economic recovery;
  3. Prioritise spending to support people in and out of work;
  4. Create new jobs, good jobs, and green jobs by investing in a Green New Deal;
  5. Support households and businesses to manage the debt overhang, for example through the introduction of a No-Interest Loan Scheme to protect lower income earners.

As the scale of the challenges facing businesses and households has increased, so has the need for additional stimulus. In particular, the Chancellor should commit now to extending the income support schemes and emergency welfare measures well into the next financial year. This support would be on par with the economic recovery packages and renewed emergency support provided by our main European partners, such as Germany and France.