Rishi Sunak, the chancellor, has emerged in recent months with the plausible aura of a future Tory leader. This budget was a crucial one for two reasons. First, it was the biggest fiscal event since the UK left the orbit of the European Union. Second, it is dawning on Britons that they can see beyond the shadow of coronavirus. Both beg the question: what sort of country could we expect to live in post-pandemic? Mr Sunak did not have an answer, which exposes him as a man of style, not substance.
In doing less than he had promised, the chancellor revealed more about the government than he perhaps wanted. Brexit’s dividend is barely visible in an age of coronavirus. The climate emergency was noticeable by its absence. It is good news that part of the Treasury and a national infrastructure bank will be in the north. Britain is far too centralised a state. But there was a wider, troubling pattern of pork-barrel spending that saw Mr Sunak shower “red wall” seats that voted Tory with free ports and town deals, as well as thinly disguised bids to buy off independence demands in Scotland. The most tangible result of Brexit seems to be an elevated trade deficit.
The UK has suffered the worst economic crisis of any major economy, with permanent scarring of £60bn. It is astonishing that employment and household support runs out in September. It’s the same story with the uplift in universal credit. It is hard to see how families will be helped, unless they buy a second home. Why cut social security when 2.2 million people will be unemployed – half a million more than at the end of 2020, and 850,000 more than before the pandemic? It is hardly a recipe to “protect jobs”, as Mr Sunak claimed.
With a successful vaccine rollout, the chancellor is betting that Britain will bounce back like a coiled spring. He has drunk the same Kool-Aid as the Bank of England’s Andy Haldane, who claimed last month that consumers had “accidentally saved” £250bn and were desperate to spend the country out of recession once the lockdown is lifted. Mr Sunak hedged his bets. Business investment is critical if Britain’s recovery is to be based on something other than household consumption. During lockdown, companies have been unable to spend and have hoarded £120bn. Mr Sunak will let them cut their tax bill by up to 25p for every £1 they invest. It’s a corporate giveaway worth an estimated £25bn.
By 2025, Mr Sunak thinks the economy will have expanded by more than a sixth. The risk is that growth does not appear. A slower economic recovery will drive up the number of households in debt and poverty. The chancellor sees the economy as half-full, not half-empty. He has chosen to ignore indebted smaller businesses and the bottom 40% of the population, who have seen their savings depleted during the pandemic.
The chancellor would like Britain’s relief response to be seen like Joe Biden’s in the US. But Mr Biden believes in the power of government; Mr Sunak does not. He has pencilled in cuts to department budgets – with the NHS dropping an astonishing £30bn post-pandemic. Carsten Jung of the Institute for Public Policy Research points out that public investment is only “half” of that needed for the economy to bounce back in a fair, sustainable way – and half that of Mr Biden’s boost.
Mr Sunak is right to raise corporation tax, which is too low by global standards, but not because he needs to fill a budget hole. He ought to offset such levies with higher public spending. The Bank will end up buying most of the debt. Treasury claims that interest rates could go up, without evidence that inflation is taking off, are scaremongering. It betrays an unhelpful, contractionary mindset. Pre-committing to a succession of budget cuts and tax increases to reduce a budget deficit is bad economics. Every deflationary package only serves to widen the gap – with more calls to repeat the process, accelerating a trend in lower production, lower employment and lower real incomes. Britain has been going round in circles like this for a decade. It’s time to get off the roundabout.
