28 February 2021

Weekly Briefing: Wishes for Rishi


Who would be a Chancellor on Budget Day?

As well as keeping a firm hand on the fiscal tiller, Rishi Sunak must deal with the endless entreaties of colleagues, pressure groups and pundits to fund pet projects, cut taxes, raise taxes, borrow more, borrow less, ‘repay’ certain voters and perhaps punish some of the bogeymen du jour, be they bankers or Bezos.

If that weren’t hard enough, throw in a few hundred billion of emergency pandemic spending and a recent rise in government bond yields. In short, Sunak’s task this Wednesday is not so much pulling rabbits from hats as balancing ten spinning plates while walking a tightrope on one leg.

Free marketeers would be forgiven for not getting their hopes up. All the pre-Budget briefing suggests this will be a grim, sober event. Talk of “levelling with people about the public finances” and “running the economy responsibly” are barely hidden code for tax rises.

Sunak certainly has political cover here: polls suggest voters are quite happy for businesses to pay more tax, and accept the need to repair the public finances.

That’s no basis on which to make fiscal policy though. The average punter does not, quite understandably, spend their days mulling the economic implications of different tax rises. Simple questions yield simplistic headlines, but I suspect if you asked ‘Would you raise corporation tax if it deterred investment and lowered wages?’, the response would be quite different.

Those who do spend their days mulling such things are near unanimous that raising taxes now would dampen our recovery. Setting out a spate of medium-term rises in business taxation would also be damaging, signalling to would-be investors that Brexit Britain isn’t the place to do business.

If he does insist on raising corporation tax, Sunak could do something quite clever by offsetting the rise with much more generous treatment of business investment (so-called ‘full expensing’). That way he can still get the crowd-pleasing headlines about companies paying their ‘fair share’, while actually making the UK a more attractive place to do business, particularly for manufacturers.

Simplicity is also a virtue, so let’s hope Sunak minimises Osborne-style headline-chasing measures of the ‘tax bankers’ bonuses to fund an orphanage’ variety. Endless tinkering does little for either investor confidence or the overall coherence of the tax system. We certainly don’t need a reheated Eat Out To Help Out scheme, or ‘high street vouchers’ – a nation that’s spent the best part of a year indoors will need little incentive to go out and spend.

Likewise on Stamp Duty, rather than offering a mere three-month extension, Sunak should seize the day and make the holiday permanent – that would send a powerful message about getting the economy moving at negligible cost to the Treasury. Nor should the Government be trying to gainsay changes to the way we work by trying to push workers back to the office. If a chunk of the workforce is going to be operating from home, the best thing Whitehall can do is work with the grain of people’s behaviour, not stand Cnut-like, trying to push back the economic tide.

The final point is on tone. Too much talk of crisis and emergency risks being a self-fulfilling prophecy, signalling to would-be investors and entrepreneurs that post-pandemic Britain will not be a rewarding or prosperous place to do business. No one is expecting the Chancellor to be all smiles, but a nod to the huge success of the vaccine programme, the success of the furlough scheme and the potential for a pronounced summer rebound would all offer a bit of light to counteract the shade of those borrowing figures.

It’s a moment too, with the end of pandemic restrictions in sight, to set out a vision for peacetime: one based not simply on paring back spending or raising taxes, but on creating an economy that is unapologetically pro-growth and pro-enterprise. Here’s hoping…

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John Ashmore is Editor of CapX.