How to throw good money after good

Budget 2021 and the challenge of delivering a rapid recovery from Covid-19

While the strength of the economic recovery from Covid-19 will depend on the vaccine rollout and the Government’s ‘road map’ for easing social distancing restrictions, it will also depend on decisions taken at the Budget which are the economic counterpart to that reopening plan. This paper assesses the economic context to the Budget: how the economy is likely to develop in the coming months, and sets out policy measures needed to help ensure that Britain has a swift recovery from the crisis as we move towards a phased unlocking of the economy.

Our analysis shows that changes to the OBR’s fiscal forecasts will be driven more by necessary extensions of the Government’s crisis support schemes, rather than a material change in the economic outlook. But there are risks to the new ‘road map’ for reducing social distancing restrictions should virus variants make vaccines less effective – requiring crisis support to be extended and the economy recovering slower.

The public policy debate in the UK has focussed more on the phasing out of crisis support measures rather than the overall macroeconomic stimulus needed for the recovery. In this report we aim to help fill that gap. We find that the Chancellor should prepare stimulus measures of the order of around £100 billion – covering: extended crisis support, green investment, permanent £20 per week uplift in Universal Credit and a voucher scheme to help high street retailers – is likely to be the right level of support over the next two years.