As a financial writer, I’m used to receiving the occasional message or press release from HM Treasury.
But never can I remember such a torrent of major spending announcements landing in my email inbox as this week — all put out by the Chancellor’s team ahead of his Budget tomorrow.
It used to be that in the run-up to the Budget there was silence (known as ‘purdah’) from the Treasury amid concerns that any leaks might serve to benefit individual traders, businesses and consumers.
In 1947, Labour’s then-Chancellor Hugh Dalton was forced to resign after carelessly disclosing an income tax rise to London’s Evening Standard newspaper on his way to delivering his Budget speech.
Never can I remember such a torrent of major spending announcements landing in my email inbox as this week — all put out by the Chancellor’s team ahead of his Budget tomorrow
Prudence
Those days are gone. Rishi Sunak has made it a feast from what began as a few strategic titbits that were fed to friendly newspapers during the spin years under New Labour.
A few weeks ago, Chancellor tried to make distance between himself and Prime Minister by advocating prudence.
Appealing to Tory fiscal conservatives at the Party conference in Manchester, Sunak said it would be ‘immoral’ for Boris Johnson’s Government to pile up more debts.
But now the Chancellor, one of the richest men in the Cabinet, is doing just that, having unveiled in the past few days new spending commitments of £30 billion and rising — all in addition to the huge bill for measures to tackle Covid, such as the furlough scheme.
Many people are asking the question: Where is all this money coming from?
Among Sunak’s many recent promises have been £6.9 billion for transport outside London (as part of the ‘levelling-up’ agenda), £5.9 billion to deal with the NHS backlog, cash for arts and sports and military expenditure — and now a further £2.6 billion to boost education for children with special needs.
There’s even a new tax change planned that will allow more of the world’s ships to ‘fly the Union Jack . . . to bring more international shipping onshore’.
Sunak is not frugal, despite his assurances to Tory voters that he was, and is spending the money like a Jeremy Corbyn.
And this is the key point.
Worthy as it may be to want to increase funding for much-needed public services, many of the tax-and-spend policies adopted by Boris Johnson’s Government fly in the face of well-established principles of public finance — not to mention ordinary household budgets.
Sunak is not frugal, despite his assurances to Tory voters that he was, and is spending the money like a Jeremy Corbyn.
Living beyond the means available to the state can lead to disaster for all of us.
This is the most important point in British economic history.
Episodes of unbounded profligacy by No 11 often lead to a run in the pound and an increase in interest rates that hammers anyone who has a mortgage and makes it impossible to pay the interest on the national loan.
Although Britain is certain to reap the benefits of having an independent fiscal strategy after leaving the EU, ministers need to recognize that we are more susceptible to external market forces on our own.
If we want to maximize the benefits of Brexit, and ensure long-term prosperity, fiscal and monetary stability, which has been a strategic anchor for Tory governments ever since Mrs Thatcher, is essential.
Any government that opens its spending spigots too wide and allows debt and borrowing to rise to unsustainable levels will find that there is no safety net when the next crisis hits.
Rishi Sunak is the most qualified politician to understand this. In his first Budget in March 2020, he set aside a modest £12 billion to cover the potential costs of Covid.
Eighteen months on, he has run up bills of £300 billion in his attempt to insulate the economy and prevent long-term scarring to output and jobs.
This represents the largest increase in public spending and the largest increase in the size of the state during peacetime.
Though the coronavirus rescue has been amazingly successful in preserving jobs, the national debt has ballooned to an almost unbelievable level: £2.2 trillion by several measures.
Some people believe that the government’s money grows on trees.
It doesn’t. It is possible for workers to pay the invoices through higher taxes, which can result in lower profits and incomes or both.
This is already happening. The Chancellor has frozen income tax allowances, rather than adjusting them to inflation in his March 2021 Budget. This has drawn far more taxpayers into paying ever higher Exchequer rates.
Repair
In September, in what was effectively a mini-Budget, the Chancellor imposed a surcharge of 1.25 per cent on both employers’ and employees’ national insurance contributions, hoping to raise £12 billion per year for the NHS and social care from next spring.
Corporation tax will rise to a staggering 25% from 19% starting in 2023.
I suspect that in his rush to raise taxes and repair the admittedly gaping holes in the nation’s finances, Sunak has squandered his best chance of proper, roaring growth.
Sunak wants to show that the Conservatives care about poorer families by announcing a generous 6.6 per cent lift in the minimum wage to £9.50
The problem is that the chancellor seems to want it both ways. He is aware he must blunt the perception that the Tories are not being prudent with your and mine money but instead high-tax big-spent.
He will be fully aware that, while voters are keen to tackle global warming, they are deeply worried by the Government’s ‘net zero’ commitments, which could land the country with a staggering £1 trillion bill.
And yet, he cannot resist attempting to poach much of Labour’s traditional ground.
Take, for example, the billions and billions spent on the NHS.
It’s certainly popular with voters, but the Institute for Fiscal Studies (IFS) points out that spending on health now accounts for an ‘astonishing’ 40 per cent of day-to-day public service outgoings.
Betrayal
That is quadruple the amount of 20 years ago and explains why the IFS says that ‘there is rather little left for anything else’.
Sunak wants to show that the Conservatives care about poorer families by announcing a generous 6.6 per cent lift in the minimum wage to £9.50.
He also hopes to stop opposition criticism by pointing at the fact that Government spending is increasing by 3 percent per year.
These lavish spending displays are all well and good — but only if the economy can fund them.
This brings us back to the second problem. After so many bountiful giveaways during Covid, the public might start to think that the nation can live with higher deficits and debt — and without high taxes to pay for them.
That is a terrible miscalculation: one that could haunt the Tories when they next go to the polls, even if Labour promises to outdo their spending plans and tax middle-class families and the nation’s wealth-creators even more.
It is not only politically wrongheaded but also a betrayal for sound money and the low-tax, non-taxed nation that Brexit promised.
Sunak will be finishing up his Budget tomorrow. He would be wise to keep this in mind.