TheCityUK Budget Response 2021

When we published our analysis of the March 2020 Budget, few people imagined that one year later, the Covid-19 pandemic would have wreaked such havoc on the economy, and would still be the dominant factor guiding the government’s near-term fiscal plans and priorities. But so it has proved, and today’s raft of Covid-related announcements, such as the further extension of the furlough scheme until the end of September and the introduction from April of business re-start grants, highlights yet again how extensive and long-lasting the fallout from the pandemic will be.

Fiscal policy has been and will remain critical in light of the limits of monetary policy in supporting demand. Given the reduction of household income and expenditure and of business investment, the unprecedented ongoing policies to support private-sector income and business cashflow are welcome—despite the fact that they and other support measures have taken the public finances into uncharted territory. The Office for Budget Responsibility (OBR) now forecasts that public sector net debt will rise to the equivalent to 109.7% of GDP in 2023-24 before falling gradually thereafter (although remaining above 100% of GDP in 2025-26).

The rapid roll-out of Covid-19 vaccines and the assumption that restrictions on activity and mobility can be eased significantly in the second half of 2021 mean that OBR’s economic forecasts are more positive than the ones published in November. However welcome this is, it must be seen in context: economic output is still only expected to return to its 2019 level by mid-2022 (compared to the previous projection of end-2022), and downside risks remain. Moreover, the OBR acknowledges that longer-term economic scarring is likely, and therefore assumes “that the pandemic lowers output in the medium term by 3 per cent relative to its pre-pandemic path”.[1]

Although it is still too soon to draw firm conclusions, it is possible that the effects of the pandemic could worsen existing UK regional inequalities. Loss of income associated with lost or reduced employment will naturally have varying effects depending on (among other things) the level of pre-pandemic household income—which differs widely across the UK’s regions, ranging from £29,362 per head in London to £16,995 in the North East.[2] Our analysis of pre-pandemic and current unemployment rates by region and nation (three-month rolling average) shows that the unemployment rate increased in all regions and nations between January and December 2020—but the increase in the unemployment rate ranged from 0.3 percentage points in Scotland to 2.2 percentage points in London.[3] In this context, the decision to extend the Levelling Up Fund that was first announced in the 2020 Spending Review to £4.8bn from £4bn and to cover all parts of the UK is welcome.

We have also long been a proponent of greater devolution of political powers. Devolving power to a clearly and tightly defined ‘place’, be that a city region, sub-region or a major new town, can ensure decision making takes place at close proximity and in continued dialogue with the local industry cluster. To this end, we welcome today’s announcement of the allocation of additional funding for local communities, as well as the confirmation of more than £1bn in funding from the Towns Fund for an additional 45 English Towns Deals. Finally, the announcement that the new UK Infrastructure Bank will be sited in Leeds, and the decision to establish an HM Treasury campus in Darlington, are welcome developments that will help disperse some of the machinery of government. The importance of these two institutions and their centrality in investment and economic policymaking underlines the importance of this agenda. However, we urge the government to ensure that these gestures are not merely symbolic, and instead represent a wider reconfiguration across government aimed at achieving economic rebalancing across the UK.

But today’s Budget was not merely reactive. Our own Representation to HM Treasury ahead of the Budget was explicit in calling for the government to focus “not just near-term crisis-relief measures, but also areas whose strength will ensure the UK’s continued economic competitiveness in an increasingly challenging economic environment”. To this end, we are pleased to see proactive initiatives to try to boost the UK’s long-term competitiveness, such as the ‘Help to Grow: Management’ scheme that will offer management training to heads of SMEs. Private-sector initiatives along these lines, such as the ’10,000 Small Businesses Programme’ run by Goldman Sachs, have recognised that most small businesses are founded and run by people with domain expertise who do not necessarily have business expertise, and that this skills gap becomes a liability as the business scales up, hampering growth and productivity. This has a material impact on the economy: 46% of employment in the UK is in SMEs.[4] Similarly, we welcome the government’s commitment to implement the recommendations of the Hill review on public listings, another area in which the UK should strive to maintain international competitiveness.

Moreover, we welcome the focus on sustainability and the specific measures designed to advance the UK’s goal of achieving net-zero carbon emissions by 2050. Sovereign green bonds have become highly successful green finance instruments in recent years, with many issues being oversubscribed.[5] In this context, the UK’s planned sovereign green bond issue is positive, although the overall impact will depend on the details of issue size and use of proceeds, which have yet to be published.  Meanwhile, the announcement of a new green savings product for retail investors through National Savings & Investment will help bring green finance further into the mainstream by raising awareness of the sector among the public.

Finally, the perception of the UK as a top destination for international talent has fallen since the EU referendum and risks falling lower with the end of the freedom of movement of people. The visa-related announcements in today’s Budget were therefore welcome; TheCityUK supports any changes to the UK’s immigration system that attract individuals with STEM skills. Ensuring the UK is attractive to global talent and those that can enhance the UK’s global leadership in technology, innovation and FinTech will be vital to the UK’s future success. The announcements also move the UK further towards the streamlined immigration system we have been calling for and reduce the administrative burden on employers and applicants.

1. Office for Budget Responsibility, ‘Economic and Fiscal Outlook March 2021’, available at:

2. Office for National Statistics,

3. Office for National Statistics,

4. Office for National Statistics, ‘Employment by employment size band’, (30 January 2019), available at:

5. For more detail, see TheCityUK and Imperial College Business School, ‘Understanding green bonds’, (May 2018), available at: