Budget 2020: Will the risk of committing to significantly higher spending now be a gamble that pays off?

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This was a Budget dominated by the response to the Covid-19 virus. The fiscal measures to support the NHS, businesses and consumers through tax relief and social safety nets, combined with the Bank of England’s announcements to cut rates and boost lending, will go a significant way towards mitigating the economic impact of the virus in the short term.

Looking beyond the immediate Covid-19 crisis, the Chancellor also announced, as expected, a very large increase in public investment over the next five years, including on transport, broadband, housing and R&D.

The inevitable implication of higher public spending without net tax increases is higher public borrowing. The chancellor is therefore taking a risk by committing to significantly higher spending now when there are many economic uncertainties ahead not just in relation to Covid-19, but also on Brexit and the wider global economic environment. Time will tell if this gamble pays off.  

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