Sunak splashes other people’s cash

Rishi Sunak unveiled a spending bonanza in his first “post-Covid” Budget in which he also pledged to cut taxes by the end of the Parliament and reduce borrowing.

Despite stressing that there were “limits” to splashing tax-payers’ money, the Chancellor announced £150bn of extra spending commitments. In doing so, he turned his back completely on a decade of Conservative cuts in a Budget that, he said, heralded “a new age of optimism”.

Commentators have been quick to draw comparisons with Labour budgets of years gone by. Paul Johnson, director of the Institute for Fiscal Studies, said: “£150bn increase in departmental spending, over parliament. 3.8% a year real increase. Those are BIG spending increases. Much more in common with Brown and Blair than Osborne and Cameron.”

Mail on Sunday journalist, Dan Hodges, called it: “The first Labour budget in over a decade… you could easily see Brown delivering this word for word.”

Despite Sunak’s pledge to eventually cut tax – and the strange coda to his speech in which he also denounced the big state interventions he had himself been advocating for the last hour – his Budget has put Britain on course for the highest tax burden since the 1950s. The Office for Budget Responsibility stated: “Taking his March and October Budgets together, the Chancellor has raised taxes by more this year than in any single year since Norman Lamont and Ken Clarke’s two 1993 Budgets in the aftermath of Black Wednesday.”

Sunak made a big deal of the OBR’s upgraded growth forecast from 4 per cent to 6.5 per cent and a reduction in Covid “scarring” from 3 per cent to 2 per cent, which gave him tens of billions more to play with. The pound rallied from a 10-day low against the dollar following the news.

But as the IFS’s Johnson points out, tucked away in the same OBR document are some “very disappointing” figures on real household incomes over the next five years, which are expected to grow at a “pretty stagnant” 0.8 per cent per year.

Frances O’Grady, general secretary of the TUC, claimed the Chancellor “has gone from pay freeze to pay squeeze.” She pointed to Sunak’s admission that there will be no pay growth this year, accusing him of having “no plan to get real wages rising for everyone after an 11-year pay squeeze”.

The FTSE fell 20 points to 7,257 following the speech, although shares in pub groups Wetherspoons and Mitchells & Butlers celebrated after Sunak simplified alcohol duties and cut duties on draught beer and cider.

Business leaders were mixed in their response. Shevaun Haviland, director general of the British Chambers of Commerce, welcomed Sunak’s business rates relief for hospitality, leisure and retail, but said he “must be prepared to take further action to enable the economy to fire on all cylinders again”.

Tony Danker, director-general of the Confederation of British Industry which represents mainly big business, was equivocal: “On business rates, the Chancellor made real strides in making the system more palatable for businesses in the shorter term.” But he warned that Sunak has missed the chance for serious reform. 

Danker added: “This Budget alone won’t seize the moment and transform the UK economy for a post-Brexit post-Covid world. Businesses remain in a high tax, low productivity economy with concerns about inflation.”

Inflation was the spectre haunting the Budget which Sunak admitted would run at 4 per cent for the year.

Price rises are likely to shape the political debate in months to come as living costs are squeezed. Doug McWilliams writes in his take on the Budget, below, that the Chancellor is betting on inflation falling back of its own accord in 2023. Whether it does or not is key to whether Sunak’s economic pitch is swallowed by voters, not to mention his own leadership ambitions. As McWilliams says: “If it does, a very confident Budget might well be seen as a vote winner. If it doesn’t, all bets are off.”