There were two voices present in yesterday’s Budget statement, two political figures locked in an occasionally uncomfortable embrace.
One of them was the man who delivered the speech, Rishi Sunak. He did so with aplomb and elegance, and a mastery of detail. It is he who has burnt the midnight oil, and made the sums add up.
But this wasn’t the address he would have made if left to his own devices. The impulse behind this high-spending Budget came from our boosterish Prime Minister, who has an inclination to splash the cash — and a political interest in doing so.
For the time being, Boris Johnson has bent Mr Sunak to his will. This was a Budget that the world would have accepted without surprise if it had been unveiled by a Labour Chancellor.
And for the most part — until the very end, when he seemed to disown much of what he had previously said — Mr Sunak announced countless spending increases with apparent conviction, even gusto.
Prime Minister Boris Johnson (right) with Chancellor of the Exchequer Rishi Sunak during a visit to Fourpure Brewery in Bermondsey, London, after Sunak delivered his Budget to the House of Commons
The Chancellor (Pictured) has reduced what he called the ‘tax on work’, whereby working people on Universal Credit pay 63p on every extra pound they earn. This will be reduced to 55p, and nearly two million families will keep, on average, an extra £1,000 a year
Many of the Thatcherite economic orthodoxies that have dominated the Tory Party for the past 40 years have been jettisoned. Under Boris Johnson, the Conservatives are becoming a high-spending, high-tax party.
Consider Mr Sunak’s boast that the Budget’s total departmental spending will go up over this Parliament by an enormous £150 billion. He informed MPs that this was the largest increase this century, amounting to 3.8 per cent a year in real terms.
I can think of few, if any, recent Tory chancellors who would have crowed about raising public expenditure so rapidly. The Labour benches were often stunned into silence. They might have been listening to one of their own.
Huge sums of money are, no doubt rightly in many cases, being thrown at the NHS, new roads, railways, housing, cladding, the courts, schools, museums and galleries in a comprehensive repudiation of the austerity promoted by David Cameron and George Osborne.
Even foreign aid will revert to 0.7 per cent of GDP by the end of this Parliament — diverting several billion pounds of taxpayers’ money overseas which might have been spent, or saved, at home.
At the same time, although there were welcome concessions for drivers and drinkers, as well as short-term help over business rates, there was nothing in the way of significant tax reductions for ordinary people.
Hardly surprising, given that the Chancellor had already announced sharp increases in National Insurance, which will take effect next April. Companies will have to face their own share of the pain when Corporation Tax rates soar in 2023.
The upshot, as the Chancellor wryly noted, is that ‘taxes are rising to their highest level as a percentage of GDP since the 1950s’. Actually, most economists reckon that we have not been so squeezed for taxation since 1948, when Labour was in power.
Admittedly, the enormous expenditure resulting from the pandemic has put the Government in an economically parlous position. It is choosing to get out of it by boosting public spending — and raising taxes.
This is a new kind of Tory government such as we haven’t seen for nearly half a century. Boris Johnson’s determination to ‘level up’ necessitates higher spending on infrastructure, as well as offering a helping hand to the lower paid.
Mr Sunak’s (Pictured) boast that the Budget’s total departmental spending will go up over this Parliament by an enormous £150 billion. He informed MPs that this was the largest increase this century, amounting to 3.8 per cent a year in real terms
So the Chancellor has reduced what he called the ‘tax on work’, whereby working people on Universal Credit pay 63p on every extra pound they earn. This will be reduced to 55p, and nearly two million families will keep, on average, an extra £1,000 a year. This is obviously a thoroughly good thing.
But whether Boris Johnson’s high-spend, high-tax recipe will be as beneficial to the country in the longer term is quite another matter. He hopes it will placate his ‘Red Wall’ former Labour voters, and give the Tories another handsome majority at the next election.
It may well do so. This was a Budget with a clever eye on an election in a couple of years. The increase in the national living wage to £9.50 an hour, and the ending of the public sector pay freeze, were other measures partly calculated to please ‘Red Wall’ voters.
But what happens after the election? Much as I may want the Tories to win it, I don’t want every policy to be subordinated to that overriding aim. One depressing aspect of the Budget was the very modest growth forecasts produced by the independent Office for Budget Responsibility (OBR).
Following a post-pandemic rebound this year and next, the OBR foresees much slower growth of only 1.3 per cent in 2024 and 1.6 per cent in 2025, which are low by almost any historical yardstick.
Granted, all such forecasts, whether by the OBR or anyone else, invariably turn out to be wide of the mark. Nonetheless, it is striking that the OBR should think our prospects for growth in the medium term are so abysmal.
My explanation is that a lower-tax economy — in which taxpayers and companies are allowed to keep more of their money — is much more likely to produce sustained economic growth. That is the lesson of Britain in the 1980s, and of countless other countries since then.
And yet this is the path on which Mr Johnson has defiantly turned his back. For the time being Mr Sunak feels compelled to go along with his master. But there were hints in his statement that he is far from being wholly happy.
For one thing, he mentioned the Prime Minister six times in his speech, which is a very unusual thing to do in a Budget statement. I can’t recall any Chancellor doing so before.
He cited ‘the Prime Minister’s economy of higher wages, higher skills, and rising productivity’, and he lauded Mr Johnson’s ‘historic reforms to social care’.
Following a post-pandemic rebound this year and next, the OBR foresees much slower growth of only 1.3 per cent in 2024 and 1.6 per cent in 2025, which are low by almost any historical yardstick
Sucking up? Perhaps. Establishing that he recognises who is ‘top dog’ for now? Probably. But I suspect that Mr Sunak was also granting Boris Johnson authorship of policies which he knows could ultimately disappoint — and from which he may one day distance himself.
In the Chancellor’s peroration, he came close to disavowing Boris’s high-taxation, high-spending tendencies when he spoke of ‘a different kind of moral dimension to the economic challenge we face now’.
He suggested the State had grown too big — having just announced several measures which made it bigger — and asked: ‘Do we want to live in a country where the response to every question is: “What is the Government going to do about it?” ’
Or, he wondered, should we ‘choose to recognise that government has limits? That government should have limits?’ Then he added: ‘My goal is to reduce taxes. By the end of this Parliament, I want taxes to be going down, not up.’
As, no doubt, does Mr Johnson, and every sensible Tory — if there is enough money left in the kitty, as some economists believe there will be. But the Chancellor wasn’t merely expressing an aspiration. He was stating a fundamental belief.
For the time being, he appeared to be saying, it will be done Boris Johnson’s way, but one day it will be done my way. When Rishi Sunak is stronger and tougher, there is going to be a big fight ahead.