31 October 2021

Weekly Briefing: The steel Chancellor?

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What kind of Chancellor is Rishi Sunak?

His allies insist a Chancellor who has just announced £150bn of extra spending and slated tens of billions of tax rises is, at heart, sceptical about the size and role of government. One tells the Times we are at ‘the top level’ of state spending, and the priority now is reducing tax – a message Sunak himself reinforced at this week’s meeting of the 1922 Committee of Tory MPs.

It’s easy to get lost in the briefing and counter-briefing about Sunak’s intentions, but even assuming he’s deadly serious about paring things back and delivering those crowd-pleasing tax cuts, he faces some huge obstacles.

The first is that he has very little room for fiscal manoeuvre. As my colleague Tom Clougherty wrote this week, the Government’s spending plans rest in large part on projections from the Office for Budget Responsibility which have, to put it charitably, not always held fast. The assumptions about productivity growth are particularly heroic, given both the UK’s consistent poor recent performance in this area and the OBR’s own forecasting record.

Nor is it clear that the Government’s current approach, particularly the slated hikes in corporation tax, will promote the short-term growth that might allow more headroom in the latter years of this Parliament. Boris Johnson talks about infrastructure spending being the ‘bedrock for growth’, but even if every pound is spent with maximal efficiency, the benefits of that investment won’t show up in improved economic performance for many years.

That brings us to another of Sunak’s obstacles – a Prime Minister who is both fond of grands projets and deadly serious about his new brand of state-centric Conservatism. That was the case well before the pandemic dramatically expanded the Government’s role in the economy. The 2019 election campaign was certainly about Brexit, but don’t forget the sub-head was 50,000 more nurses, 20,000 more police and lots of dosh for science, schools and skills.

But Boris Johnson isn’t the only Conservative MP who is keen on high public spending. Indeed, if ‘Levelling Up’ means anything to Tory backbenchers – especially those defending slim majorities – it is ‘money for my area’. For every Thatcherite chuntering about the size of the state there’s another colleague or three pleading for their slice of the pie to spruce up their local high street or build a new bypass.

It’s also difficult for the Conservatives to change tack when spending freely puts Labour in such a tight spot. There was a darkly amusing report recently that the Opposition had decided to stop talking about Johnson’s ‘pork barrel politics’ because it turns out voters quite like the idea of more spending in their area.

That brings us to the final obstacle in Sunak’s path – public expectations. Once the Government has decided to pitch spending at a certain level, it becomes that much more difficult to reduce it later. This is, however, an area where some of his recent choices offer room for optimism. The refusal to maintain the temporary £20 uplift in Universal Credit, in particular, showed Sunak can face down a concerted, vocal campaign for higher spending when he needs to.

Sunak may not have been an Iron Chancellor so far, but if he’s serious about reining in the ballooning British state, he’ll need to show more of that steel.

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John Ashmore is Editor of CapX.