February 24, 2021


UK: Vaccination success leads to lockdown and fiscal debates

BY Carsten Nickel

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The country’s stellar vaccination performance has had two implications on the policy front. First, the provision of a first vaccine shot to the 15mn most vulnerable people has raised the expectations for an easing of lockdown measures, to which the government responded in its roadmap this week. The second consequence is a renewed debate about the fiscal path forward, in anticipation of the 3 March budget to be unveiled by Chancellor Rishi Sunak.

PM Boris Johnson seems to have learned from previous miscalculations, when a fast phase-out of lockdown restrictions prompted a quick return to rising case numbers. The government now remains careful not to reopen too quickly, despite the well-managed vaccination campaign. In fact, Johnson is trying to utilize the political capital he has gained from his demonstrated track record on managing the vaccine procurement and roll-out project, to keep the lockdown skeptics in his cabinet and parliamentary party onboard.

The PM’s staged approach to exiting the current lockdown in England identifies the earliest possible dates for further relaxations rather than making fixed commitments. The entire agenda remains conditional upon continued vaccination success as well as falling case numbers. Five-week gaps are intended to ensure that the effects of every previous round of easing restrictions can be assessed before the next one follows.

On that basis, schools will begin to reopen on 8 March. The subsequent steps are for now intended to follow until end-June. As of then, the last social distancing measures might be phased out. It is due to the resounding success of the vaccination project that Johnson’s careful and nation-wide (rather than regionally tiered) phasing-out effort has received the backing of a large majority in his cabinet and the ruling Conservatives.

However, with a view to the budget, it is less clear how the government’s vaccination success will play out politically. One certain thing is that the relatively slow phase-out of restrictions will very likely call for yet another extension of public support measures. Therefore, the stamp duty holiday will likely be extended to the summer, as will probably be the case with furlough schemes, Covid loans, and the business rates holiday.

At the same time, tax hikes remain the most hotly anticipated topic. As discussed in the past, and in contrast to much of the speculation of previous weeks, respective steps are likely to materialize only in the autumn. This seems to be the case, for instance, with the envisaged annual increase of corporation tax by one percentage point until it reaches 23%. For now, changes to capital gains tax are not expected to be discussed in the March budget.

Meanwhile, initiatives to boost jobs and skills should also be a major focus as the country emerges from the pandemic. If this were to be the eventual policy mix in the budget, the Tories’ changed voter base would have left yet another clearly visible mark on government policy.

Playing to his “Global Britain” mantra, meanwhile, Johnson seems eager to use the UK’s G7 presidency to discuss sharing vaccines with emerging countries. But as long as the EU continues to trail far behind the UK’s stellar vaccination performance, Johnson’s European partners will likely find it difficult to agree to respective commitments.

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