There were two voices present in yesterday’s Budget statement, two political figures locked in an occasionally uncomfortable embrace.
Rishi Sunak, the man who gave the speech, was one of them. He did this with elegance and grace and a mastery over detail. He is the one who has worked tirelessly to make the numbers add up.
But this wasn’t the address he would have made if left to his own devices. The impulse behind this high-spending Budget came from our boosterish Prime Minister, who has an inclination to splash the cash — and a political interest in doing so.
Boris Johnson has for the moment imposed his will on Mr Sunak. This Budget was one that the world would have accepted if it were unveiled by a Labour leader.
And for the most part — until the very end, when he seemed to disown much of what he had previously said — Mr Sunak announced countless spending increases with apparent conviction, even gusto.
Boris Johnson, Prime Minster, and Rishi Sunak (Chancellor of the Exchequer) during a visit in Fourpure Brewery in Bermondsey after Sunak delivered his Budget.
The Chancellor (Pictured) has reduced what he called the ‘tax on work’, whereby working people on Universal Credit pay 63p on every extra pound they earn. This will be reduced to 55p, and nearly two million families will keep, on average, an extra £1,000 a year
Many of the Thatcherite economic orthodoxies which have dominated the Tory Party over the past 40 years are being tossed out. Boris Johnson has made the Conservatives a high-spending party that is high-tax.
Consider Mr Sunak’s boast that the Budget’s total departmental spending will go up over this Parliament by an enormous £150 billion. He stated to MPs that this was a massive increase of 3.8 per cent per annum in real terms.
I cannot think of any recent Tory chancellors, if any. They would have preached about increasing public expenditures so quickly. The Labour benches were often stunned into silence. They might have been listening one of their own.
Huge sums are being spent, in many cases, in the right direction, on the NHS, new roads and railways, housing and cladding, as well as the courts, schools and galleries, in a complete repudiation for the austerity promoted in the past by George Osborne and David Cameron.
Even foreign aid will revert to 0.7 per cent of GDP by the end of this Parliament — diverting several billion pounds of taxpayers’ money overseas which might have been spent, or saved, at home.
Despite the welcome concessions made for drivers and drinkers as well as short-term relief over business rates, there were no significant tax cuts for the average person.
This is not surprising considering that the Chancellor already announced sharp increases in National Insurance which will take place next April. Corporation Tax rates are expected to rise by 2023 and companies will feel the pinch.
The upshot, as the Chancellor wryly noted, is that ‘taxes are rising to their highest level as a percentage of GDP since the 1950s’. Most economists believe that we haven’t been so squeezed for taxes since 1948, when Labour was at power.
The Government is in an economically difficult position due to the huge expenditures resulting from the pandemic. It is choosing to get out of it by boosting public spending — and raising taxes.
This is a new kind of Tory government such as we haven’t seen for nearly half a century. Boris Johnson’s determination to ‘level up’ necessitates higher spending on infrastructure, as well as offering a helping hand to the lower paid.
Mr Sunak’s (Pictured) boast that the Budget’s total departmental spending will go up over this Parliament by an enormous £150 billion. He stated to MPs that this was a staggering 3.8 percent increase per year in real terms.
So the Chancellor has reduced what he called the ‘tax on work’, whereby working people on Universal Credit pay 63p on every extra pound they earn. This will be reduced to 55p, and nearly two million families will keep, on average, an extra £1,000 a year. This is clearly a very good thing.
But whether Boris Johnson’s high-spend, high-tax recipe will be as beneficial to the country in the longer term is quite another matter. He hopes it will placate his ‘Red Wall’ former Labour voters, and give the Tories another handsome majority at the next election.
It might. This Budget was cleverly crafted to target an election in a few years. The increase in the national living wage to £9.50 an hour, and the ending of the public sector pay freeze, were other measures partly calculated to please ‘Red Wall’ voters.
But what happens next? Much as I may want the Tories to win it, I don’t want every policy to be subordinated to that overriding aim. The very modest growth forecasts made by the independent Office for Budget Responsibility, (OBR) was a depressing aspect to the Budget.
Following a recovery from the pandemic this year and next, OBR expects slower growth of only 1.3% in 2024, and 1.6% 2025. These are both low historical rates.
All forecasts, regardless of whether they are made by the OBR or any other entity, will always be inaccurate. It is remarkable that the OBR thinks our prospects for growth in medium term are so poor.
My explanation is that a lower-tax economy — in which taxpayers and companies are allowed to keep more of their money — is much more likely to produce sustained economic growth. This is the lesson that Britain learned in the 1980s and many other countries since.
Yet, this is the road on which Johnson has stubbornly turned his back. Mr Sunak feels for the moment compelled to follow his master. However, there were indications in his statement that he is far away from being completely happy.
First, he mentioned Prime Minister six times during his speech. This is very unusual in a Budget statement. I can’t recall any Chancellor doing so before.
He cited ‘the Prime Minister’s economy of higher wages, higher skills, and rising productivity’, and he lauded Mr Johnson’s ‘historic reforms to social care’.
The OBR predicts a slower growth rate of only 1.3% in 2024 and 1.6% in 2025 following a post-pandemic rebound. These numbers are very low by historical standards.
Are you being sucked in? Perhaps. Establishing that he recognises who is ‘top dog’ for now? Probably. But I suspect that Mr Sunak was also granting Boris Johnson authorship of policies which he knows could ultimately disappoint — and from which he may one day distance himself.
In the Chancellor’s peroration, he came close to disavowing Boris’s high-taxation, high-spending tendencies when he spoke of ‘a different kind of moral dimension to the economic challenge we face now’.
He suggested the State had grown too big — having just announced several measures which made it bigger — and asked: ‘Do we want to live in a country where the response to every question is: “What is the Government going to do about it?” ’
Or, he wondered, should we ‘choose to recognise that government has limits? That government should have limits?’ Then he added: ‘My goal is to reduce taxes. By the end of this Parliament, I want taxes to be going down, not up.’
As, no doubt, does Mr Johnson, and every sensible Tory — if there is enough money left in the kitty, as some economists believe there will be. But the Chancellor wasn’t merely expressing an aspiration. He was stating a fundamental belief.
For the time being, he appeared to be saying, it will be done Boris Johnson’s way, but one day it will be done my way. It will be a tough fight when Rishi is stronger and more determined.