Written by Citywire

March, 2020

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Chancellor hints looser fiscal rules could soften coronavirus impact

Chancellor Rishi Sunak has hinted he could loosen his fiscal rules to help the UK deal with the impact of coronavirus.

Speaking on the BBC’s Andrew Marr show yesterday, the chancellor declined to comment on whether he would stick to a government manifesto pledge not to borrow for day-to-day spending by 2023, but said the government would do everything within its power to cope with the outbreak of the virus. 

‘We will respond at scale to whatever scenario comes our way,’ he said.

In its manifesto for last December’s general election, the Conservatives pledged to ‘invest thoughtfully’.

‘We will not borrow to fund day-to-day spending, but will invest thoughtfully and responsibly in infrastructure right across our country in order to increase productivity and wages,’ it said. 

‘Our fiscal rules mean that public sector net investment will not average more than 3% of gross domestic product, and that if debt interest reaches 6% of revenue, we will reassess our plans to keep debt under control.’

However, reports suggest that these rules could now be significantly relaxed, according to the FT

Whitehall sources say the prime minister was already keen to relax the constraints on government spending before coronavirus became an issue, and that this was a major source of tension between him and Sunak’s predecessor Sajid Javid, who quit government in a shock resignation last month. 

Elaborating on the government’s plans to soften the impact of coronavirus on supply chains, Sunak said his Budget this Wednesday would contain measures to help small companies cope.

The raft of policies is expected to include a ‘time to pay’ forbearance on tax bills and other measures to help companies facing cash flow issues.

Sunak has previously said that he had told HM Revenue & Customs not to be too ‘heavy handed’ in its enforcement of new IR35 tax rules that will hit contractors and businesses nationwide. 

The chancellor is also investigating helping employees on flexible and zero-hours contracts in the event that they are advised to self-isolate and cannot go to work.

The use of fiscal rules has been a bone of contention between Number 10 and the Treasury in recent months.

Influence by Number 10 – and specifically the prime minister’s chief of staff Dominic Cummings – on Treasury policy and staffing was a major reason for Javid’s departure. 

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