Rishi Sunak has postponed a major stimulus package of tax cuts and spending pledges until the autumn to see how the economy fares before making further commitments.
Last night the Treasury confirmed that the Chancellor is still set to announce some limited measures in July, but that this would not be an emergency Budget or mini-budget despite recent speculation.
Mr Sunak, who has previously spoken about the need to focus resources on national recovery, has already spent £133bn to soften some of the economic damage caused by the pandemic.This has increased Britain’s budget deficit to wartme levels.
The Treasury department said: “We will be taking stock of the economic situation, and looking at if and where further support makes sense ahead of the more significant moments in the autumn.”
It came as the Chancellor picked a veteran Treasury economist who has worked for the Left-leaning Resolution Foundation to take charge of Britain’s spending watchdog.
Richard Hughes will be charged with checking the Government’s tax and spending plans as head of the Office for Budget Responsibility (OBR).
Mr Hughes, whose £158,762 salary is slightly more than the prime minister’s pay packet, led fiscal policy at the Treasury and has a long history of studying the fiscal rules which he will monitor in his new job.
His recent work includes research into the likely effects of a three, six, or 12-month pandemic, indicating he is prepared for the devastating financial consequences of the coronavirus, as well as proposing ways the Government could respond.
He replaces Robert Chote, who has led the OBR for the decade since it was established by Chancellor George Osborne to monitor the public finances.
I am honoured to be nominated by the Chancellor of the Exchequer to be the next Chair of the Office for Budget Responsibility (1/4)https://t.co/jdWhpuWyMT— Richard Hughes (@rjdhughes) June 5, 2020
The job includes producing official economic forecasts and estimating the likely odds of the Government hitting its fiscal pledges.
Those targets are in tatters as the Government is set to borrow more than £300bn this year. The lockdown has trashed tax revenues and the Treasury is paying the wages of more than 8m furloughed workers and more than 2m self-employed people.
The OBR has set out a scenario for what could happen to the economy and public finances under a three-month lockdown, outlining a brutal economic contraction but sharp "V-shaped" recovery which has been widely criticised by economists as too optimistic.
Mr Hughes’ scenarios at the Resolution Foundation studied a longer pandemic. With a six-month outbreak he foresees Government spending rising to more than 60pc of GDP this year with borrowing of almost £400bn and a national debt peaking at 129pc of GDP.
Under a 12-month pandemic, spending reaches almost 80pc of GDP, borrowing £648bn and a debt totalling 167pc of GDP, or more than £3 trillion.
However, he has also proposed alternative ways to manage the state finances that could make such debts appear less burdensome.
One option is to count the public sector’s assets as well as its liabilities, so spending on assets such as buildings would count as a gain as well as a cost in the finances because it would increase the value of what the state owns.
Before the pandemic he had also studied the potential impact of a "no deal" Brexit, which is back on the political agenda due to an impasse in trade talks.
Mr Hughes’ reports warned that the longer it takes after a no-deal departure from the European Union to reach a trade agreement, with the bloc, the greater the harm to the economy, including higher inflation and nemployment.
He rejoined the Treasury in 2016 only after it produced controversial pre-referendum claims that a Brexit vote would spark economic collapse.
Rishi Sunak thanked Mr Chote and said: “At an unprecedented time when the state has had to take unprecedented action, it is essential that our institutions work as they should to ensure that we retain our complete commitment to strong public finances and responsible management of taxpayers’ money.
“That makes the independence and role of the Office for Budget Responsibility all the more important.
"So I am delighted to nominate Richard Hughes to be the next chair of the OBR. We’re doing so months ahead of the handover to give the institution the certainty it needs to continue to play its vital role in supporting the credibility of the UK’s fiscal framework.”
Mr Hughes said: “It is both a great privilege and a tremendous responsibility to be proposed for this position during one of the most challenging times for the UK economy and public finances in the wake of the coronavirus outbreak.”
The official must first be grilled by MPs on the Treasury Select Committee, whose approval he requires before taking up the role.