Biden unleashes a fiscal bazooka, but Britain has no such weapon

The Chancellor is reportedly also considering a rise in corporation tax, and of following the advice of the Office for Tax Simplification by aligning capital gains tax rates with income tax and cutting the tax-free allowance. Both of these are potentially quite large tax hikes. In any case, the pandemic-related spending splurge is to be brought to as fast a conclusion as he dares.

When it comes to the euro area, still labouring as it does under the constraints of the fiscal compact, the dichotomy with the US is perhaps more understandable. Those fiscal rules have, admittedly, been all but abandoned for the duration of the pandemic but they still lurk in the background – providing perpetual background noise of ongoing fiscal restraint.

The EU has made a great show of its €1.8 trillion (£1.6 trillion) coronavirus recovery fund, but how much of this genuinely amounts to fiscal stimulus looks ever more questionable. The money doesn’t start flowing until the summer, it is spread over seven years, and is substantially in the form of loans to governments rather than grants.

Yet the UK is under no such restriction, particularly now, having left the EU. It is entirely free to make monetary and fiscal policy as it sees fit. Even so, some of the same mindset still thankfully seems to instruct Treasury thinking. I say “thankfully” since even in the midst of a pandemic, there has to be some sense of fiscal discipline. At some stage, harsh truths have to reassert themselves.

Britain is not the US, where dollar hegemony allows borrowing with impunity from the rest of the world without apparent sanction. Sad to say, but as a substantially smaller economy whose currency long since lost its power on the global stage to the dollar, Britain remains highly vulnerable to any loss of international confidence.

As it is, things look perilous enough. The Government will be borrowing upwards of £400bn this financial year, or around 18pc of GDP. Nothing like it has been seen since the Second World War. About the only thing keeping us afloat is ultra low interest rates which have ensured that, even as we borrow more, our overall debt servicing costs have fallen.

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