No chancellor can ever foresee what dramatic events he may have to face, and certainly Rishi Sunak has faced a very deep challenge indeed – first a global pandemic and then a recession.
He has dealt with the situation with great skill. But yesterday, as he delivered his budget, it seemed to me that we were watching a very polished double act – ‘The Two Rishis Show’.
The Rishi was the expansive one, leading us into a Promised Land flowing full of milk and honey. He exuded optimism and the increase in public spending that he announced.
And then, popping out from behind him from time to time, there was the fiscally responsible Rishi, the man with a reputation for caution, who says he wants to take away the Prime Minister’s credit card.
No chancellor can ever foresee what dramatic events he may have to face, and certainly Rishi Sunak (pictured yesterday) has faced a very deep challenge indeed – first a global pandemic and then a recession. He has shown great skill in handling the situation.
Parts of his speech were part of an electioneering Budget. Rapid succession followed by impressive and highly detailed proposals.
We heard lots of references to an ‘infrastructure revolution’ and of course the big headline – an increase in public spending of £150billion by the end of the parliament.
He also made sure to mention several measures that were possible only due to the benefits of Brexit.
These include the simplification and efficiency of alcohol taxes, as well as changes in shipping taxes. He was enjoying the benefits of Brexit and was determined to let his audience know about it.
But after highlighting the largesse on offer, the more conservative Rishi stepped forward – not to dampen the euphoria but to make it clear that he will ensure that we live within our means. He also announced new fiscal rules to ensure that the Government borrows at sustainable levels.
But yesterday, as he delivered his budget, it seemed to me that we were watching a very polished double act – ‘The Two Rishis Show’. The Rishi was expansive, leading us to a Promised Land filled with milk and honey. Then, just behind him, was the Rishi, the man known for his caution and fiscal responsibility.
The House will have to vote on the charter. This is likely to be a clever tactic to trap Labour into agreeing to responsible behavior.
For many Conservative MPs, the most important part of the speech – what they were waiting for – came when the Chancellor declared he was not comfortable with keeping taxes at their highest level since the Attlee Labour government.
He stated that more than half of the economy’s GDP now comes from government spending. It’s plain that goes against all Conservative instincts. He wants tax to fall by the next election.
It is important to ask whether this is consistent in spending announcements. There’s one statistic above all that has to be considered.
Norman Lamont, former chancellor, wrote that a Chancellor should never ignore the link between national debt (pictured) and national income
A Chancellor can never ignore the relationship between national debt and national income – how much the country borrows each year, against its gross domestic product, or how much money it generates.
The stock of debt is currently forecast to be 85 percent of GDP this year. It will increase to 85.4 per cent next year… and again the year after that, peaking at 85.7 procent.
In theory, if the Chancellor’s predictions are right, the national debt will start to stabilise and fall. To make that happen, we need to have a substantial growth of our economy.
However, the Office for Budget Responsibility predicts less than 2 percent growth at the conclusion of the survey period.
The Chancellor also warned about rising inflation. Inflation was at 3.3 percent in September and is expected to increase to 4% next.
As older readers will know, inflation is extremely unpopular. It can lead to the phenomenon of stagflation – slower growth plus inflation.
Andrew Bailey, the Governor of Bank of England is the only real counter to inflation. The Bank can raise interest rates. But the Bank is independent of the Treasury – and Mr Bailey is not part of anybody’s double act.
Interest rates are currently so low that the Bank may be reluctant to raise them much above 1 per cent – too little to make a dent in inflation of 4 per cent.
The Bank suggests the spike in inflation will be ‘transitional’. But how long is ‘transitional’? If oil prices rise to $100/barrel and disruptions to global supply chain continue beyond 2022, then inflation could be a problem for many months.
We all want to believe in the new, post-Covid ‘age of optimism’. Let us hope that the forecasts are right and it is the conservative Rishi Sunak – rather than his free-spending alter ego – who prevails.