27 October 2021

Budget Briefing: Rishful thinking?


If March’s Budget was a rather dour affair, today’s follow-up was altogether jollier. Rishi Sunak bounced to his feet, buoyed not just by his pre-game Twix and Sprite, but by a sunny forecast from the Office for Budget Responsibility – higher growth (for a couple of years), lower unemployment, debt finally starting to fall (at least in percentage terms). Even the threat of inflation hitting 4% didn’t seem to dampen Sunak’s enthusiasm. 

Those better than expected growth numbers underpinned Sunak’s multi-pronged plan for a ‘stronger economy’ (a phrase he repeated on no fewer than 14 occasions).  As his speech went on, however, it became increasingly difficult to distinguish between a stronger economy and a bigger state. As Sunak himself noted, the pandemic response meant that ‘last year, the state grew to be over half the size of the total economy. Taxes are rising to their highest level as a percentage of GDP since the 1950s.’

What’s remarkable is how little he plans to do to change that situation, and how rarely he prayed in aid the extraordinary demands of the pandemic to justify a free-wheeling fiscal policy.  If taxes are staying high, it’s not just down to Covid, but because departmental spending is now set to rise by £150bn over the course of this Parliament. The NHS swallows up a good chunk of that spending, and there’s £7bn of somewhat new money for local transport, along with a lengthening roll-call of centrally administered schemes such as the Net Zero strategy, the Future Fund, the Shared Prosperity Fund, Help to Grow and the Levelling Up Fund.

Nor is there much sign that Sunak will use any of his fiscal headroom to reduce the tax burden he mentioned. This year remains a story of big tax rises – March’s hike in corporation tax; the largely unremarked freezing of income tax brackets and, of course, the Health and Social Care Levy. Indeed, had the latter been announced today instead of several weeks ago, the whole tone of today’s speech would have been much less tubthumping. 

Let’s not overdose on gloom though. One of today’s most important announcements was a big cut to the Universal Credit taper rate, a policy advocated by a broad and varied alliance that includes our parent organisation, the Centre for Policy Studies. Rationalising our utterly bonkers alcohol taxes was also overdue, and a 50% business rate cut for leisure, hospitality and retail businesses was very welcome, even if it stopped short of the root-and-branch changes the high street is crying out for.  We should also, I suppose,  be grateful for the measures that didn’t materialise, such as an Online Sales Tax and the perennial pre-Budget threat to scrap tax relief on pensions contributions. 

As for the politics of it, what was striking was how often Sunak invoked the Prime Minister in his speech. Some commentators see everything Sunak does in terms of his own ambitions, but today’s clothes-stealing, tank-parking, cake-having and subsequent cake-eating were all pure Boris Johnson. If there were any doubts about who’s in charge, nods to ‘the Prime Minister’s economy’, ‘the Prime Minister’s historic reforms to social care’ and ‘the Prime Minister’s lifetime skills guarantee’ put them to bed.

There was something rather Johnsonian in the way Sunak rounded off his remarks. Having spent the best part of an hour doling out public money to all and sundry, the Chancellor suddenly slammed on the rhetorical brakes and pivoted to some good old-fashioned Toryism.

‘Do we want to live in a country where the response to every question is: “what is the government going to do about it” – where every time prices rise, every time a company gets in trouble, every time some new challenge emerges, the answer is always: the taxpayer must pay?’

The problem is, if Sunak continues to offer a high tax, high-spending economic agenda, that is the country we are going to end up living in – whether he wants to or not.

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John Ashmore is Editor of CapX.