Home workers who ‘built up savings’ must go on spending spree when pandemic ends, Rishi Sunak saysDecember 20, 2020
Home workers who have saved heavily during the coronavirus lockdown need to start spending heavily next year to restore the UK’s economy, Rishi Sunak has said.
The news came as Parliament’s spending watchdog warned that nearly three million people may have been excluded from the Treasury’s two schemes to support the employed and self-employed during the coronavirus crisis.
Mr Sunak, the Chancellor, told an online event for Conservative party members last weekend that he “felt good” about the prospects for the UK recovering strongly after the coronavirus pandemic has eased.
He said: “I feel good about the bounceback – I think people have been sitting at home, building up some savings hopefully and we would like to go and spend them when we get back.”
The Chancellor also used the event to appeal to the party’s grassroots to bear with ministers as they imposed restrictions on England to ease the country through the pandemic.
He added: “It is very difficult for us. We are Conservatives, we believe in freedom. This is very difficult but this is unfortunately necessary at the moment – we have just got to get through these next few difficult months.”
A report earlier this month from the Centre for Business and Economic Research found that households are estimated to have saved 19 per cent of their disposable incomes in 2020.
This is more than double the savings ratio of seven per cent in 2019 and equates to £7,100 per household, or £197 billion across all households.
The CEBR said: “The £197 billion question, therefore, is what will households do with this money that they have accumulated in 2020 when restrictions ease?
“Of course, a large chunk of these savings will have gone into pensions, which will not be available for spending for some time.”
But it added that households might look to spend their savings on holidays while the CEBR detected “considerable pent-up demand” to spend on “the arts, entertainment and live sports”.
However it warned that “spending behaviours will depend on how confident consumers feel about the economy next year.
“A combination of Brexit and the end of the furlough scheme … could damage economic output and the labour market early next year, meaning consumers would rather hold on to much of the extra cash they have accumulated in 2020, rather than spend it.”
Douglas McWilliams, the CEBR’s deputy chairman, told The Telegraph: “The money is there. What’s critical is whether consumers have enough confidence to spend it.”
Last week Mr Sunak announced that the Budget will be held in early March where he will outline the next stage in the Government’s economic response to the Budget, while the furlough scheme would be extended by a month to the end of April.
Julian Jessop, a leading independent economist, added: “This is a welcome change of tone from the Chancellor.
“Just a few weeks ago he was warning that our ‘economic emergency has only just begun’, which sent exactly the wrong message to consumers and businesses.
“But if he wants people to spend their increased savings – and companies to invest more – he also needs to stop worrying them with talk of tax hikes.”
Separately, MPs on the Public Accounts Spending Committee said that “a combination of policy decisions, limitations in HMRC data and the prioritisation of speed means that as many as 2.9 million workers may have been excluded” from the two schemes.
The two schemes are estimated to have cost the taxpayer £76 billion by the end of April. However the MPs added: “HM Treasury is unable to provide even a ballpark official figure for extending the schemes, or explain how it will determine whether the money has been well spent.
“HMRC still does not know the actual level of fraud and error in the schemes and will not have a complete estimate until the end of 2021 at the earliest.”