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‘Locked down and locked in’: the pandemic plight of UK university students

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In the two months since she arrived at the University of Manchester, Hannah Virgo has been nowhere near a lecture theatre, sports hall or student bar. But she has occupied an empty tower block.

Nearly two weeks ago, the 18-year-old and nine other students sneaked into Owens Park Tower, at the centre of Manchester’s Fallowfield campus, and barricaded themselves inside to protest against the university’s handling of education in the pandemic.

Despite the coronavirus crisis, students were encouraged to start their courses at UK universities on the promise of an undergraduate experience, but many say they have been abandoned with little in the way of financial or mental health support, locked down with strangers as Covid-19 tore through university accommodation, and forced to pay annual tuition fees of £9,250 for lessons over Zoom.

“They moved us here under false pretences,” Ms Virgo says. “Basically, they lied to us so we’d pay our fees.”

With universities still teaching through a second wave of the virus, and a second national lockdown, thousands of UK students appear to be coming to the same conclusion. Some are turning to direct action. In universities from Glasgow to Bristol, hundreds have gone on rent strike, and the occupation at Owens Park was continuing last night despite the university offering to compromise on rent.

Students Hannah Virgo, Lucy Nichol and Lotte Marley at the University of Manchester. Virgo says the university 'moved us here under false pretences. Basically they lied to us so we’d pay our fees'
Students Hannah Virgo, Lucy Nichol and Lotte Marley at the University of Manchester. Virgo says the university ‘moved us here under false pretences. Basically they lied to us so we’d pay our fees’
Manchester university students stand behind a fence erected around their Fallowfield halls of residence. Undergraduates said they felt 'imprisoned' and tore down the fencing
Manchester university students stand behind a fence erected around their Fallowfield halls of residence. Undergraduates said they felt ‘imprisoned’ and tore down the fencing © Christopher Furlong/Getty

A decade on from the student protests against the tripling of tuition fees, the pandemic has exposed deep fissures in the UK’s model of higher education. Dependent on student fees, and with little additional help from the government, critics say universities were driven by financial imperatives to bring students back to campus. They say the decision is typical in a market-driven system in which universities are businesses, bound to view students as fee-paying consumers and prioritise generating income over teaching, research and welfare.

In the past two decades, university funding has been transformed. The UK higher education sector as a whole now relies on student fees for half its £40bn annual income. Universities have become landlords, event managers and caterers in a bid to secure their finances and fund expansion, with students making a large contribution to the economic activity of many UK towns and cities.

Although many universities have large reserves and run healthy surpluses, this left them vulnerable when the pandemic hit. In July, the Institute for Fiscal Studies, an influential think-tank, reported that sector-wide losses could amount to nearly half of overall annual income — up to £19bn. Some universities with already precarious finances, it warned, could be pushed towards insolvency.

Dot plot showing that the UK is an outlier on higher education funding distribution

Within weeks of term beginning, thousands of students had been forced to self-isolate, including 1,700 in two accommodation blocks at Manchester Metropolitan, the English city’s second university. By mid-October, case rates in university areas in England were 701 per 100,000, compared with 141 in areas with fewer students, although cases have since fallen.

“If you’re a student, you’ve been sold the idea that you’d have this slightly modified experience,” says Vicky Blake, president of the University College Union, which represents more than 120,000 academics and support staff. “That was never possible. And now students have been locked down, locked in, paying high tuition fees, made to feel like biological weapons.”

‘Taken by surprise’

Manchester university’s Oxford Road campus, on the edge of the city centre, would on an ordinary November afternoon be packed with a significant portion of its 40,000 students. This week only a handful drifted about the libraries and lecture halls.

Over summer, emails from the university promised that staff were working to ensure students could have as normal a university experience as possible. But just a few weeks into term, a lockdown across Greater Manchester meant the majority of face-to-face teaching was cancelled. Now, students are able to book a limited number of spaces in libraries or computer rooms, but facilities such as bars and gyms are closed and only essential practical work, for example in science or medicine, is permitted.

Nancy Rothwell, vice-chancellor of Manchester university, admits to being 'taken by surprise' by the spread and scale of the virus, but remains confident it was the right decision to bring students back to university
Nancy Rothwell, vice-chancellor of Manchester university, admits to being ‘taken by surprise’ by the spread and scale of the virus, but remains confident it was the right decision to bring students back to university © Joel Goodman/LNP
Students at Manchester Metropolitan University. Within weeks of term beginning, 1,700 students in two accommodation blocks at the university were told to self-isolate
Students at Manchester Metropolitan University. Within weeks of term beginning, 1,700 students in two accommodation blocks at the university were told to self-isolate © Joel Goodman/LNP/Shutterstock

“We shouldn’t have been told to come here,” says Stella, a first-year arts student who declined to give her surname. Although sympathetic to her lecturers, who she says have worked hard to offer online lessons, she is angered by what she describes as poor management, confusing messaging and patchy welfare provision from the university. “They just don’t have a plan,” she says. “Everything is so unclear and just badly communicated.”

When Stella and her flatmates had to self-isolate after one of them tested positive, a care package from the university only arrived three days before the end of the 14-day quarantine. Stuffed with food that was close to its expiry date, it had to be thrown away. The mental health provision promised by the university proved difficult to access, she says, with long waiting lists.

Nancy Rothwell, vice-chancellor of Manchester university, says the institution thought it was fully prepared for the pandemic, having spent “literally millions” on mental health provision and investing heavily in online teaching resources.

However, she admits to being “taken by surprise” by the spread and scale of the virus, which quickly increased from a handful of cases to more than 200 of the university’s students a day after the start of term. But while she says her “sympathy goes out” to those struggling, she remains confident it was the right decision to bring students back to university.

Column chart of In 2019-20 prices (£bn) showing Funding for universities shifts towards fees

While it is too early to know yet whether more students than normal have dropped out during their first term, a survey this month by Opinium and student accommodation provider Unite supports the vice-chancellor’s position. It found 93 per cent of students want to stay on at university and 82 per cent are happy they moved into student accommodation.

“It’s an incredibly difficult position, where we are doing all we can,” Dame Nancy says. “The vast majority of students chose to come, and in our experience to date very few are leaving — most students don’t regret going to university.”

A loss of ‘trust’

During the first wave of the pandemic, when face-to-face teaching was abandoned, many universities feared that students just wouldn’t come back. When the IFS published its forecast in July, it made clear that most universities had healthy enough finances to survive the turmoil. But it warned of losses of up to £4.3bn from reduced international student numbers, and up to £7.6bn from deficits in pension schemes, as well as falls in the conference, catering and student accommodation income streams that are now crucial pieces of universities’ funding jigsaws.

Despite calls for a £2bn bailout, the government offered only limited financial support for struggling universities. Even that was offered in terms of a “restructuring package” that placed stringent conditions on universities. Many vice-chancellors saw the move as symptomatic of a hostility to higher education: in July, education secretary Gavin Williamson scrapped the 1999 target of Tony Blair’s government of getting 50 per cent of young people into higher education, saying it was “not always what the individual and nation needs”.

Students self-isolate in Manchester. The Office for Students, the higher education regulator, has indicated that universities should consider claims for partial refunds over coronavirus restrictions
Students self-isolate in Manchester. The Office for Students, the higher education regulator, has indicated that universities should consider claims for partial refunds over coronavirus restrictions © Christopher Furlong/Getty
A student protests outside Manchester Metropolitan University. Vicky Blake, president of the University College Union, says 'students have been locked down, locked in, paying high tuition fees, made to feel like biological weapons'
A student protests outside Manchester Metropolitan University. Vicky Blake, president of the University College Union, says ‘students have been locked down, locked in, paying high tuition fees, made to feel like biological weapons’ © Molly Darlington/Reuters

Steven Jones, a professor of higher education at Manchester university, says this financial vulnerability and the rush to bring students back was based in part on the reality that UK universities operate more like businesses, competing to attract the students they depend on for income.

Despite widespread protests, in 2012 the government changed how higher education was funded in England. Fees for home students increased to £9,000, mostly in the form of government loans paid off by students over time. A cap on recruitment was later lifted, heralding further growth in the higher education sector, and a scramble to attract students.

Since then, total funding for higher education per student has increased by 25 per cent, according to the IFS, and the number enrolling on undergraduate degrees has risen by nearly 10 per cent, to 541,000 in 2019.

But it also shifted the source of funding from the state to the individual. Since 2012, the domestic fee income of English higher education increased nearly fourfold, from £2.6bn to £10.1bn. At the same time, direct government support for teaching fell 76 per cent in real terms.

In 2017, for when its most recent comparisons are available, the OECD reported that 79 per cent of tertiary education spending in the UK was from private sources, and 21 per cent from the public purse. But the OECD’s private classification includes loan financing — much of which students will never pay back — and so it likely underestimates the eventual public spend in UK higher education. Still, the figures put it at odds with much of Europe: in Germany, 85 per cent of tertiary education funding is publicly funded, and in France 79 per cent.

Line chart of Income of higher education providers (£bn) showing Funding from other sources increase as grants rise

As UK universities embraced a market agenda, and moved over two decades from being fee-free to among the most expensive in the world, their contract with students “fundamentally changed”, Prof Jones says. During Covid-19, when the government failed to offer a meaningful bailout to universities, the cracks in the model widened.

About 96 per cent of upfront government support to universities is now in the form of loans, according to the IFS, much of which will eventually be paid back by students. However, Jack Britton, associate director at the IFS, says this shift has not necessarily made universities more vulnerable, as grant funding in previous decades was also calculated according to student numbers. 

“Most universities still want to do what’s right for their students, but in a competitive environment they also have to protect their market share and the income that comes with it,” Prof Jones says. “There’s now a suspicion that you just don’t see in countries where universities are more a part of the public sector. We’ve lost trust.”

Refunds ‘would destroy’ universities

In Manchester, that disconnect has been demonstrated in grave and sometimes tragic events, which have inflamed tensions between university management and undergraduates.

In early October Finn Kitson, a first-year student living in the Fallowfield halls of residence, was found dead in his room after suffering from anxiety. An inquest opened in November.

His grieving father, Michael, an academic at Cambridge university, disputed a report that the teenager’s death had not been related to Covid-19: “If you lock down young people because of Covid-19 with little support, then you should expect that they suffer severe anxiety,” he tweeted. Separately, the mental health charity Mind found 73 per cent of students reported their mental health had declined during lockdown.

Line chart showing that participation in higher education has increased dramatically in the past 20 years

In early November, first-year students living in the same halls of residence woke to discover tall metal fencing had been erected around the perimeter of the site. The university said it was intended to protect students from trespassers, but the undergraduates said they felt “imprisoned” and tore down the fencing.

Adding to the feelings of distrust, a week later Zac Adan, a black first-year student, was walking back to his room on the campus when he was stopped by security guards, pushed against a wall and accused, according to his testimony, of “looking like a drug dealer”. After a video of the incident went viral online the university was forced to launch an inquiry. For Marcell Mapp, a third-year student in disaster management, the alleged racial profiling of Mr Adan was personal. “When I saw the video of Zac, I left the room and I just started crying,” he says. “To come to university where I’m supposed to feel safe and to see someone who looks like me banged up against a wall — it really affected me.”

The unease of students has been echoed by some academics in Manchester. Half a dozen lecturers who spoke to the Financial Times say the pandemic exacerbated a feeling of being sidelined. “There’s a very small group of people making decisions about education who aren’t educators,” says one academic of their experience.

The UCU has argued since the beginning of the pandemic that online teaching should be the default position for universities to guarantee safety, facilitate essential face-to-face teaching and ease the workload. Instead, academics say many universities over promised on what students could expect, then flip-flopped on how staff needed to prepare for face-to-face and online teaching, leaving them “scrabbling around” to plan lessons.

A student deposits her sample as she demonstrates how to take a coronavirus test at a walk-through testing centre at Glasgow Caledonian University
A student deposits her sample as she demonstrates how to take a coronavirus test at a walk-through testing centre at Glasgow Caledonian University © Andrew Milligan/WPA Pool/Getty
Philippa Browning of the UCU says: 'Every university was afraid of losing students, and the idea was to offer face-to-face [teaching] so the students didn’t drop out. Anyone with any sense knew that wasn’t possible — we were already in lockdown'
Philippa Browning of the UCU says: ‘Every university was afraid of losing students, and the idea was to offer face-to-face [teaching] so the students didn’t drop out. Anyone with any sense knew that wasn’t possible — we were already in lockdown’

Philippa Browning, a physics professor and co vice-president of the UCU branch at Manchester, estimates staff would need to work about 20-30 extra hours per week to convert a lecture series to online delivery, and other academics say planning for a combination of online and face to face teaching requires up to six times the workload.

Prof Browning believes a “mistake was made” when the university emailed students to encourage them back. “Every university was afraid of losing students, and the idea was to offer face-to-face [teaching] so the students didn’t drop out,” she says. “Anyone with any sense knew that wasn’t possible — we were already in lockdown.”

In Manchester, a new campaign group, Safer — Student Action for a Fair and Educated Response — is pushing for fees to be cut to £6,162, the rate charged by the Open University, a distance learning institution.

The Office for Students, the higher education regulator, has indicated that universities should consider claims for partial refunds, which will be pursued through the Office for the Independent Adjudicator.

But, says Gavan Conlon, an education researcher at the consultancy London Economics, universities have behaved “entirely rationally”, given the importance of fees, and made statements about what students could expect “in good faith” in the context of the UK government’s “shambolic” response to the pandemic.

Even a one-off refund of £1,000 per student, he estimates, would push institutions into deficit. “It would destroy them,” he says.

That would cost Manchester university about £40m. With an annual income of £1.1bn, Dame Nancy admits that the university is “worried” about the consequences of the pandemic for its finances. Losses in other income streams such as events and on-campus retail have collided with increased costs for online teaching and campus safety, she says.

The UCU’s Ms Blake acknowledges the financial vulnerabilities of universities. But she says managers need to see past those risks to work closely with staff and students if they are to overcome them. “They have failed because they have not engaged with students and staff,” she adds.

Larissa Kennedy, president of the National Union of Students, says the anger stirred by the pandemic and the damage done to relations between students and universities will not be forgotten.

“Students are railing not just against what’s going on now, but the whole financial structure of higher education funding in the UK,” she says. “We need a new strategy, thinking about what fully funded education looks like. We cannot accept that this system continues.”





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Analysis

Investors lambast Sunak’s plans to raise corporation tax

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Shareholders have hit out at the British government’s plans to raise the UK corporation tax rate and warned it could make the country a less attractive place for investment.

Chancellor Rishi Sunak on Wednesday set out plans to increase the corporation tax rate from 19 to 25 per cent for larger businesses in 2023 — the first time it will have been raised since 1974.

The Treasury estimates the move will raise £17bn in 2025-26, but investors expressed concern because of how it could reduce dividend payments by companies.

Richard Buxton, fund manager at Jupiter, an investment group, said Sunak’s proposed increase in the corporation tax rate amounted to a “sizeable bite” out of businesses’ profits.

“When looking at potential profits over a three to five year time horizon investors will have to factor this in, and it will erode earnings and potential dividend growth,” he added.

“In turn, this may at the margin reduce the attraction of UK equities to both domestic and international investors.”

The UK is one of the world’s most popular financial markets for income-seeking investors.

Tom Stevenson, investment director at Fidelity International, a fund manager, said Sunak’s increase in the corporation tax rate would leave the UK just about competitive “but shareholders in the largest, listed companies that will bear the brunt of the measure will not welcome this”.

David Page, head of macro research at Axa Investment Managers, another investment group, said he expected more countries to raise corporation tax rates like the UK, but added: “Does this make the UK less attractive? At the margins yes.”

Nigel Green, chief executive of deVere Group, a financial adviser, said Sunak’s move “will reduce profit after tax and slash the profit available for dividends. This will not go unnoticed by those looking to invest in the UK”.

Sunak said in his Budget speech in the House of Commons that even after his corporation tax reform, the UK’s headline rate would still be the lowest among G7 nations.

But experts said the UK does not look as competitive internationally on other measures, because it is much less generous than other countries — including France and Germany — in the share of capital spending that companies are allowed to set against taxable profits.

An OECD measure of the effective marginal corporate tax rate — the amount of tax a hypothetical company pays on an extra pound of profit — shows the UK is close to the average among developed economies now, but could have one of the toughest regimes among the international organisation’s member nations after 2023.

“The headline rate is not the only thing that matters . . . Mr Sunak is taking a gamble that raising corporate taxes further up the international pecking order won’t have too terrible an effect on investment,” said Paul Johnson, director of the Institute for Fiscal Studies.

Corporation tax rise will give UK relatively high effective rate. Chart showing Effective marginal corporate tax rate, 2019 (%). With the increase in UK's corporation tax in 2023 it will be behind only Australia, Spain and New Zealand in the OECD with the Effective marginal corporate tax rate

The IFS said the extra revenue stemming from the higher rate of corporation tax would in the long run be less than the government’s £17bn a year estimate.

A higher rate would reduce incentives for companies to make investments that would increase profits in later years, it added.

Sunak said on Wednesday the majority of businesses would avoid the corporation tax reform given a rate of 19 per cent would apply to businesses making profits of less than £50,000 each year.

He added the rise in the corporation tax rate to 25 per cent for larger companies in 2023 will be preceded by a new allowance for capital spending, providing a “super-deduction” of 130 per cent on new plant and machinery. 

Dan Neidle, a partner at the law firm Clifford Chance, said the two year tax break would be a strong incentive for companies to accelerate investments that were in the works, although it was not long enough to generate new capital spending that took time to plan.

Tax campaigners TaxWatch UK also criticised the move, saying it would give a tax break to companies that have thrived during the pandemic, including Amazon.

Analysis by TaxWatch found Amazon Services UK, an entity that provides warehousing and delivery services, would have its corporation tax bill wiped out based on its last reported spending on plant and machinery. Amazon declined to comment.

Several smaller companies announced they would bring forward investments as a result of Sunak’s proposed tax break, although larger businesses including defence manufacturer Meggitt said that it would be more difficult to change long term plans.

Tony Wood, chief executive of Meggitt, said the company made “decisions on where to do [the] engineering effort based on what is right for the decade rather than what is right for the two year timeframe”.

But Gavin Cordwell-Smith, chief executive of Hellens group, which owns a paving slab manufacturer in Sunak’s Richmond constituency, said that “as a direct consequence of the [chancellor’s super deduction] announcement, we have already decided to accelerate our growth plans, including a new production line”.

Chemicals maker Christeyns will also bring forward investment plans — and likely increase them — in three factories, said director Nick Garthwaite. 

Some business leaders expressed concern at how Sunak’s planned tax break would only last two years, and be immediately followed by the increase in the corporation tax rate to 25 per cent.

“The chancellor wants a two year investment boom, but we will then go from feast to famine at a time when the consumer recovery might be tailing off,” said one executive.

Additional reporting by Sylvia Pfeifer in London



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China’s leaders focus on post-Covid economy at annual meeting

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China’s National People’s Congress, the country’s annual rubber-stamp parliament session, will convene on Friday for a meeting set to focus on a problem many other countries wished they had: how to rein in an economy that has rebounded from the coronavirus pandemic.

“There have been intense discussions about monetary and fiscal policy,” said Wang Jun at the China Center for International Economic Exchange, a government think-tank in Beijing. “The primary goal is to stabilise leverage, but if policy [tightening] goes too far too quickly it may have a negative impact on financial markets as well as the real economy.”

The NPC will run for about a week and is typically a forum where previously agreed measures and policy objectives are formally approved. Last year’s session, however, was dominated by Chinese president Xi Jinping’s surprise announcement of a stringent national security law for Hong Kong after the city was rocked by anti-government protests in 2019.

The gathering also provides the biggest stage of the year for Xi to project his unchallenged grip on both the government and the Chinese Communist party as he prepares for an unprecedented third term in power in late 2022.

China’s post-Covid recovery contrasts starkly with the situation in the US, where the pandemic has claimed the lives of more than 500,000 Americans and President Joe Biden is pushing Congress to pass a $1.9tn economic stimulus package.

China annual GDP growth rate 2018-2020

Guo Shuqing, one of China’s most powerful financial regulators, warned this week about the dangers of “extremely loose monetary policies” in the US and other pandemic-wracked economies, saying the measures could cause “too much fluctuation” in Chinese financial markets.

He added that China’s property market was still afflicted by “relatively large bubbles” and suggested lending rates would “rebound” this year. Guo, who heads the banking regulator and is also the most senior party official at China’s central bank, pronounced late last year that the real estate sector was the country’s “greatest grey rhino in terms of financial risk”.

Guo’s comments sparked a sell-off on regional markets, illustrating the difficult balance he and other financial officials must attempt to strike. Stimulus measures rolled out by Chinese president Xi Jinping’s administration early last year helped spur investment but also propelled debt levels in the world’s second-largest economy to about 270 per cent of GDP.

“While the leadership feels confident about the economy’s trajectory, there is still a lot of uncertainty,” said Andrew Polk at Trivium, a Beijing-based consultancy. “Authorities need to find a way to unleash consumption and pick up slack from industrial production and real estate investment.”

Shuang Ding, chief China economist at Standard Chartered in Hong Kong, said Beijing was likely to reduce its budget deficit to 3 per cent of GDP, down from 3.6 per cent last year. But he also forecast the Chinese economy would grow at least 6 per cent year on year, with “substantial room for outperformance”, and create 11m jobs.

“The most pressing economic issues are how to withdraw from last year’s expansionary fiscal policy and how to increase consumption,” said Jia Jinjing, an economics professor at Renmin University in Beijing. “The central deficit budget will be lower than last year but still above 3 per cent. We cannot rely too much on increased debt to spur consumption.”

China retail sales growth

NPC delegates will also formally pass the party’s 14th five-year economic plan, which is focused on achieving “self-reliance” in a number of critical technology sectors as well as ambitious environmental goals, including reaching peak carbon dioxide emissions by 2030 and net-zero emissions by 2060.

The NPC session in 2020 was delayed for almost three months by the pandemic and fixated on the imposition of the national security law on Hong Kong.

This year, it is likely to approve measures that will further reduce the pro-democracy camp’s representation in the city’s legislature. It is also expected to unveil rules consolidating Beijing’s hold on an already pro-establishment “election committee” that chooses Hong Kong’s chief executive.

Dozens of Hong Kong democracy activists, including publisher Jimmy Lai and jailed student leader Joshua Wong, have been charged with alleged offences of the security law. In a speech last month, Xia Baolong, head of the Chinese government office responsible for Hong Kong, singled out Lai and Wong as “extremely vile anti-China elements”.

“There doesn’t seem to be any end to the crackdown,” said Willy Lam, a China politics expert at the Chinese University of Hong Kong. “Xi has made up his mind to snuff out Hong Kong’s opposition movement altogether. For ordinary people, Beijing will insist on ‘patriotic education’ in the schools and media.”

A Chinese academic who advises Beijing on Hong Kong issues said the territory had been “too unbridled” prior to last year’s passage of the national security law. “The central government had no other option,” said the academic, who asked not to be identified. “The Hong Kong opposition overestimated its power.”

Additional reporting by Xinning Liu in Beijing



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Sunak goes big and bold to try to repair the public finances

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Chancellor Rishi Sunak’s Budget was big, bold and broke many longstanding records for the public finances.

At an estimated £355bn, the level of UK government borrowing forecast for 2020-21 is due to be the highest since the second world war, reflecting the severity of the coronavirus crisis. It highlights the sheer scale of emergency state support for companies and households during the Covid-19 pandemic.

The tax rises announced on Wednesday by the Conservative chancellor for the middle of the decade — affecting businesses and individuals — will be the largest since 1993. The increases will raise the UK tax burden to its highest level since Roy Jenkins was the Labour party chancellor in the late 1960s.

Justifying his approach, Sunak told the House of Commons: “Just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked.”

As far as the public finances are concerned, the March 3 Budget will become known as a “give then take” affair that will reshape the relationship between the state and the private sector for many years ahead.

And the figures in the Budget documents confirm the coronavirus crisis has utterly transformed the public finances for the worse.

At the March 2020 Budget, when the UK had little clue about the enormity of the pandemic, the Office for Budget Responsibility thought the government would borrow £55bn in 2020-21.

Sunak, who unveiled a £12bn support plan for the economy in what was his first Budget, has since had to add huge amounts of public spending in 16 major announcements.

On Wednesday, he outlined another £40bn of support, bringing total spending to £344bn, according to the OBR: roughly 16 per cent of gross domestic product, and well above the average of 13.3 per cent among advanced economies.

Chart showing the 16 major announcements since the last Budget have increased coronavirus support

It is this spending, alongside a loss of £90bn of expected tax revenues, that is set to raise the level of government borrowing to the highest level in peacetime.

In 2021-22, the government is still planning to spend £93bn on virus related support, mostly going to the NHS, but with large sums also for continued support for companies and households.

Karen Ward, strategist at JPMorgan Asset Management and a former adviser to Philip Hammond when he was chancellor, said Sunak was wise to keep splashing the cash in the next financial year. “The chancellor has rightly erred on the side of an extension that is potentially too long, rather than one that is too short,” she added.

With the colossal borrowing, underlying UK public debt, excluding temporary Bank of England schemes, is set to jump from a pre-pandemic forecast of 73 per cent of GDP by the middle of this decade to 97 per cent in the latest OBR prediction.

The 24 percentage point rise in the core debt burden is the second large jump in a little over a decade following the fiscal shock associated with the 2007-08 financial crisis. At about 100 per cent of GDP, UK public debt is now at its highest level since the early 1960s, when it was gradually coming down following the second world war.

Chart showing that public debt is set to rise to levels not seen since the early 1960s

This Budget was not just about fiscal support in 2021-22, but also stimulus to power the recovery, according to Richard Hughes, OBR chair. He said Sunak’s £25bn “super-deduction” in corporation tax would “stoke the recovery” and “encourage businesses to bring forward future investment into the next two years”.

But after 2021-22, the giveaways stop, and Sunak becomes the revenue raising chancellor, with very large increases planned in corporation and income taxes.

The moves risk damaging the UK’s international standing. In 2018, the OECD said the UK taxed corporate profits below the rich country average. Britain collected 2.6 per cent of national income through the levy, compared with the OECD average of 3.1 per cent.

By 2025-26, the OBR projections suggest UK corporate taxes will generate revenues above the OECD average, although Hughes said this level was “one [the UK] seldom sustained for very long in the postwar period”.

Paul Johnson, director of the Institute for Fiscal Studies, a think-tank, said Sunak’s corporation tax rise was a significant risk. “For all the rhetoric about it leaving the headline rate here below that in other G7 countries, our effective tax rate will be relatively high,” he added.

The tax rises will tackle the high level of borrowing, however, according to the OBR.

It projects the increases will lower the current budget deficit in 2025-26 from £37bn, had Sunak done nothing, to £1bn, almost balancing the government’s books excluding public investment. This is a core ambition of ministers.

Chart showing Rishi Sunak’s spend then tax Budget to balance the books

Some economists thought Sunak should have been more explicit in setting new targets for the public finances.

Hande Kucuk, deputy director of the National Institute of Economic and Social Research, a research organisation, said the Budget needed “a comprehensive fiscal framework to build confidence in a sustained recovery given the significant uncertainty regarding the long-term effects of Covid-19 and Brexit”.

Other economists were more forgiving since there are huge uncertainties hanging over the public finances. The path of the pandemic is perhaps the largest, but Sunak also has to worry about the possibility of increased debt servicing bills if interest rates rise, and whether he can cut spending as he plans when the virus subsides.

Torsten Bell, director of the Resolution Foundation, another think-tank, was sceptical the chancellor would be able to reduce departmental spending.

The Budget documents showed a stealthy £4bn a year cut in spending alongside the tax rises. “He’ll end up spending more than that,” said Bell, adding this would add to pressure to proceed with additional tax rises.

But Sunak is an optimist, and hopes the uncertainty will go in his favour. If the economic recovery is sufficiently rapid, the chancellor will be looking to the OBR to cut its estimate of a 3 per cent long term hit to the economy from coronavirus.

And if that happens in a future Budget, Sunak can look forward to the possibility of tax cuts before the next general election.



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