Mr. Sunak, rising taxes and rising prices do not add up to an age of optimism | Andrew Rawnsley
C.Annon on his right, cannon on his left. Since submitting his budget, Rishi Sunak has been bombarded by two opinion batteries. From the right there is incredulous horror that he and Boris Johnson have transformed the Conservatives into a party with high taxes and spending. Many of the Tory Party’s traditional media supporters are appalled as MPs rumble with discontent. “It’s back to the ’70s,” groans a senior Conservative old enough to remember the decade that ended with Margaret Thatcher showing up to push the state back.
There are shouts from the left that this budget was basically a trick, because the Chancellor’s expenses are not as generous as he wanted them to appear, since here, there and everywhere he has raked in additional billions that the neighbor next door demanded for splashes of money . Mr. Sunak made the bold claim that the Conservatives were “the real public service party,” but critics counter that much of the public sector will remain in worse shape than when the Tories took office more than a decade ago.
The Prime Minister and Chancellor may say that attacks from the right and left show what a politically smart budget this was. When you are angry Guardian and at the same time provoke the anger of Telegraph, they need to be positioned in the midfield, where most of the voters gather. And anyway, right and left can’t both be right, can they? Actually, they can.
Right is right about taxes. A conservative party, which has always presented itself to the electorate as the party of low taxes, will now lead an increase unprecedented in speed and magnitude. Some of the raids will be extremely obvious to the public, especially the social security increase that will bite next year. Others are more stealthy but add up to a crowd over time, such as the freezing of thresholds pulling more people into higher income tax brackets. The Resolution Foundation calculates – and the Treasury Department has not denied the figure – that the average household will be worse off £ 3,000 a year. Taxes relative to the size of the economy will rise to their highest level since the early 1950s, when the Attlee government rebuilt Britain after six years of World War II.
Mr Sunak knows how unpopular this is with the Tory MPs he wants to support in the next election of a leader. So he tells them that this distresses him as much as it does them. There was an odd passage in his household speech when he abruptly opened a sermon on the virtues of the limited state, as if some other guy had raised all those taxes while he was not looking. On the evening of the budget, he tried to appease unruly Tory backbenchers by promising in a meeting with them that he would cut taxes before the next election. The loud approval of its audience suggests that we are not seeing a real ideological transformation of the conservative party into a large, interventionist state. You ended up here without intending to due to circumstances and past mistakes, while being led by a cake donor who is especially keen to please Red Wall voters.
Despite the enormous tax demands, the left’s criticism of spending is also correct. By the standards of the recent past, the increased money for public services looks pretty good. But the recent past is not the way to measure that budget. The better yardstick is to compare what public service delivery is likely to be like in 2024 and how well they were funded when the Conservatives came to power in 2010. This is not a comparison that Mr Johnson is interested in. He would rather it if a great amnesia flooded the collective consciousness of the country and completely forgot all David Thingy, George Whatwashisname and that unfortunate woman who lived briefly at number 10 before he moved in. The Prime Minister wants the public to see him as the head of a very different and relatively young government that has never had anything to do with this terrible austerity policy. Because if you evaluate the overall balance since 2010, the Tories by no means look like good friends of the public service.
The NHS will have enjoyed a significant real increase in funding, in part as an inexorable consequence of our aging society. Education was given a little more money to fix the learning loss as a result of the pandemic, but nothing like the amount recommended by the Prime Minister’s catch-up tsar, Kevan Collins, before stepping down over the government’s refusal to heed his advice. The best-case analysis sees the expenditure per student almost back at the 2010 level. In practically all other areas of activity, Mr. Sunak draws a line under austerity measures, but does not reverse them. There was an example of when he bragged about giving up a small amount to “family centers” that provide support for the early years, while failing to mention years of drastic cuts in Sure Start centers, many of them due to chronic underfunding the local government were closed. Councilors, custodians of many critical public services, have suffered particularly brutal blows during the Tory years. The real funding of local government will still be far less than it was before they took office.
There’s a reason many public services will remain mediocre or worse, even if taxes rise to their highest level in 70 years. The basic explanation is sluggish economic growth. If the economy grows 2.5% a year, the country can afford decent public services with relatively modest taxes. If you grow by 1.5%, you’ll end up with inferior public services for higher taxes. Over the past decade, growth has been much closer to 1.5% than it is to 2.5%. “Rishi keeps his fingers crossed and says we can have these extra spending and then some tax cuts before the election,” said a former cabinet minister in the Conservative Party’s One-Nation wing. “The game of chance is on growth.”
Another former Cabinet Secretary much more Thatcher-minded agrees: “If this were American football, it would be Ave Maria. He threw the ball up, hoping it would land in the right place. It’s full of risks. His plan is to get tax cuts before the next election, but he may not have the growth to afford them. “
The Chancellor will lose the risk of growth if the official forecasters are right about the economy. The Budgetary Responsibility Office expects the recovery from the pandemic to fizzle out and growth to be very disappointing towards the end of this Parliament. It has also confirmed that the government has handicapped itself with a very tough version of Brexit. Mr Sunak may brag that leaving the EU exempted him from reforming alcohol taxes, but he cannot claim a Brexit bonus for the economy. The opposite is the case. Brexit will permanently cut 4% of GDP, the OBR estimates, double the damage caused by Covid. This wasted growth that many teachers, police officers, and nurses could have paid for.
The Chancellor, who uses the stimulating rhetoric of his neighbors, promises us “an economy that is fit for a new age of optimism”. It won’t look like it if the growth is so anemic that it feels nonexistent to much of the country. Rising costs are already making many households look pessimistic about their future standard of living, an issue that affects almost everyone, but on which the Chancellor said little and did less. The British are faced with soaring energy bills, higher retail prices and inflation threatening to hit the lowest level in three decades. Financial institutions set their mortgage rates in the expectation that the Bank of England will raise rates soon. Rising inflation and borrowing costs combined with weak growth and higher taxes are a recipe for near-frozen disposable income. Independent forecasters expect most people to have experiences small improvement their standard of living and some bottleneck over the next five years.
The Chancellor desperately hopes that these predictions will turn out to be wrong. Because if they are right, the public will not see a pulsating age of optimism in the next government election. It’s going to feel a lot more like a grueling age of stagnation.