11 March 2020

Rishi Sunak’s déjà vu Budget


History may not repeat itself, as the saying goes, but it does rhyme. One wonders if any of the longer-serving Tory MPs felt a sense of déjà vu these past weeks as they watched global events overtake the Government’s ambitions to pivot to a more spendthrift sort of Toryism.

There are key differences, of course. When David Cameron and George Osborne were forced to abandon their commitment to shadowing New Labour’s spending plans, they had instead to implement ‘austerity’, a diametrically opposed policy. Rishi Sunak, on the other hand, faces in Covid-19 a challenge which absolutely demands increased public spending, specifically in critical areas such as the NHS.

But there can be little doubt that the huge resources committed to this public health effort have cast a shadow over the rest of the Budget, and may continue to do so for some time to come. For all the talk of turning on the spending taps, a huge amount of this new spending (beyond funds for combating the pandemic) is in serious infrastructure investment.

This is very welcome, but it doesn’t represent what ordinary voters might expect from the ‘end of austerity’. Social programmes which have been cut since 2010 are not receiving a big inflow of cash. If the Chancellor isn’t careful, over the course of a five-year parliament this disconnect could open up a dangerous gap between voters’ expectations and the condition of public services on the ground.

Like Osborne, Sunak now faces the challenging task of responding decisively to an international crisis whilst simultaneously trying to fulfil his leader’s long-term political strategy. The former was sufficiently successful at this that he managed, after five years of budget cuts, to win the first overall Tory majority since 1992. How will his successor fare?

So far, it looks as if the Chancellor has taken on board the warnings from some of his new ‘Red Wall’ MPs that, contra the expectations of some commentators, the route to retaining their seats does not involve simply turning into the Labour Party on taxation and spending.

Whilst there are certainly some policies that will make Thatcherites wince, such as the curbs on Entrepreneurs’ Relief and abandoning a planned cut to Corporation Tax, Sunak has shied away from the sort of tax rises a leftist Chancellor would have used to fund general public spending increases.

He has also maintained some totemic tax policies, such as the freezes on fuel and beer duties, which have an outsize impact on lower-income and non-metropolitan voters. There were also some pro-worker policies, specifically plans to lift the threshold for National Insurance contributions to £9,500.

But this attitude did not extend to the millions working in the new economy. Sunak is pressing ahead with controversial reforms to ‘IR35’, the tax regime governing a huge number of self-employed workers, which could see many of them facing the same tax burdens as full-time employees – but without any of the traditional rights and protections. Given the furious response from Tory MPs when Philip Hammond tried to impose higher National Insurance contributions on freelancers only a few years ago, the muted response to this is notable.

Have these workers found themselves outside the shifting boundaries of the Tory-voting coalition the Prime Minister is building? And given that they will likely represent a large and growing share of the economy for the foreseeable future, is this wise?

This tricky relationship with the future might also affect what the Tories are calling “the fastest and largest increase” in research and development funding, much of which may simply make up for potential private-sector investment in areas, such as ‘clean diesel’ and electric cars, where it has been disincentivised by the Government’s decision to accelerate towards ‘Netzero’. Ask any MP from a car-making town: corporate R&D in long-term technologies needs stable short and medium-term revenues.

Major infrastructure investment is the sort of spending that lends itself to nation-building, a term which can span both Boris Johnson’s rhetoric about ‘levelling up’ to reduce regional inequalities and his commitment to strengthening the Union, and we can see evidence of both in the Budget.

It is significant that the biggest improvements in mobile and broadband coverage from projects such as the Shared Rural Network – another one aimed squarely at the non-metropolitan electorate – are apparently going to accrue to Scotland, Wales, and Northern Ireland. This should be just the first step in a major, carefully-planned ramping up of Treasury investment in those parts of the country as the United Kingdom takes back control of funds which were previously invested under the aegis of the European Union.

Meanwhile the Chancellor has also announced plans to move 22,000 civil servants out of London, including to a new ‘economic campus’ in the North. This is a nice headline, but the challenge will be ensuring that these new outposts don’t end up suffering from ‘Salford Syndrome’ – the BBC’s northern bubble is scarcely a shining example of a transplanted institution really taking root in the surrounding community.

Despite being partially eclipsed by the coronavirus, this Budget is a key signal of how Boris Johnson intends to weld together the electoral coalition he assembled to ‘get Brexit done’. The emphasis on investing in rural communities, the regions, and less well-off workers is evident.

But if he wants to avoid lending credence to the allegations that his is a fundamentally nostalgic, backwards-facing prospectus, the Prime Minister should pay more heed to issues such as IR35. A truly future-facing, ‘One Nation’ vision – one that isn’t a cold house for the young, the urban, and the mobile – should be on the side of the self-employed.

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Henry Hill is Assistant Editor of ConservativeHome.

This column is the author's own opinion and does not necessarily reflect the views of CapX