Rishi Sunak gave a polished performance. It helps that he is highly intelligent, thoroughly at ease with economics, and equally at ease in his own skin. His backbenchers want an excuse to feel cheerful and he gave them one, at least in the short term.
Yet there is a basic problem. There are fundamental questions to which he gave no answers. This is not specifically his fault. How could there be simple answers when we are living in a world beset by uncertainty at so many levels?
Whatever happens in Ukraine, there will be serious economic dislocation (we should be thankful if this is the worst that could happen). Defence spending will have to increase and there will be costs in working towards energy self-sufficiency, though some of those could be reduced if the dafter green objectives were abandoned. On energy, we cannot afford to burden ourselves with unnecessary expenditure. If matters go well, there will have to be a massive Western programme to help the Ukrainians to rebuild their country. Perhaps the UK could pay for its share with some more QE, though one can understand the Chancellor’s reluctance to give the impression, either to his backbenchers or to the markers, that he has discovered the philosopher’s stone. Instead, he was right to warn the country that the public finances could come under great pressure.
Although the fiscal passages were impressive, the best part of the speech came at the beginning. On Ukraine, Sunak struck exactly the right note. It is to be hoped that Boris Johnson was paying attention. If so, he might have learned that it is possible to speak about grave events and serious themes without sounding like a complete eejit. But to suggest that the PM could be prepared to learn anything underrates his stubbornness. No doubt he will simply carry on clowning.
When the Chancellor was talking about Ukraine, I thought back to October 1989: John Major’s first platform speech at a Tory Conference, preceded by Nigel Lawson’s last one. Major had recently become Foreign Secretary, so he naturally wanted to revel in the changes that were taking place in Eastern Europe, with freedom advancing over the horizon (alas for the different advances and bleaker horizons of today). But there was a difficulty. Few if any Tory ministers had good news to announce, so they all said as much as possible about the hopeful developments in the crumbling Soviet Empire, as if these were part of their departmental responsibilities.
Chancellor Lawson was the most spectacular trespasser. This was hardly surprising. The encouraging news of previous years was giving way to his warnings about “too much of a good thing.” So he was happy to distract the audience’s attention from the British economy by telling them, to paraphrase Athur Hugh Clough: “Eastward, look, the land is bright.” John Major, nervous, as was excusable for a debutant in such a major role, had to be reassured that there was no need to slash passages in his text, just because Lawson had got there first.
There is another parallel. Around that time, The Chancellor and Mrs Thatcher were having a serious falling out over monetary policy, which was to end in Lawson’s resignation, an event which weakened the PM and added to the growing doubts as to whether the Old Girl was still up to it.
These days, it is more a matter of fiscal policy. There is a regular susurration of gossip in Downing Street. The Prime Minister – have cake, eat cake – is said to be fed up with the Chancellor’s obsession with fiscal probity while the Chancellor believes that the PM has no understanding of fiscal discipline (if that is what Sunak thinks, he is right).
This is not a good way to run a government. Then again, what would be a good way to turn a government with Johnson in charge? But in a sensible world, the PM and his Chancellor would hammer out a joint policy and very few of their closest advisors would be privy to the discussions: no leaks, no susurrations.
With Bojo at the helm, this will not happen. But this does not mean that the Chancellor is always right. No doubt because it is one commodity which he rarely lacks, Boris understands the importance of animal spirits. The UK has to grow its way to recovery, and domestic demand is a crucial part of that process. That depends on people’s willingness to spend and invest.
The Chancellor is doing what he can to stimulate this. His tax increases are delivered by stealth, the reductions via the headlines – and the same is true of his post-dated promises of further cuts. He has also done what he can to bring relief to the alarm clock classes – the struggling families on middle incomes – while insisting that he will do everything he can to reduce the level of taxation whenever circumstances will permit. But he does not know when that will be. Nor does anyone else.
These days, it would be impossible for Sunak to choose between tea and coffee without some mischievous commentator interpreting this as a leadership bid. His enthusiasm for tax cuts is widely seen as an appeal to his own party, in Parliament and in the country. That said, there is no sense in failing to appeal to them, and he is unquestionably sincere in his wish for lower taxes, when possible.
But Sunak has to be careful. If there is too much exuberance, inflation could rise even higher than the estimates. Worse still, the country could be subjected to that terrible fate, stagflation. This is no time for cake-stall fiscal policy. Instead, the Chancellor has to hope that he can emulate another Goldilocks: nothing to do with the Johnson family, but the girl who tried all the Three Bears’ porridge until she found the one that was just right.
That, of course, was in a nursery story, so there was a happy ending. Real life is another matter.