No chancellor can ever foresee what dramatic events he may have to face, and certainly Rishi Sunak has faced a very deep challenge indeed – first a global pandemic and then a recession.
He has handled the situation with great skill. But yesterday, as he delivered his budget, it seemed to me that we were watching a very polished double act – ‘The Two Rishis Show’.
There was the expansive Rishi, leading us into a Promised Land flowing with milk and honey, exhilarated by his own optimism and by the increases in public spending he announced.
And then, popping out from behind him from time to time, there was the fiscally responsible Rishi, the man with a reputation for caution, who says he wants to take away the Prime Minister’s credit card.
No chancellor can ever foresee what dramatic events he may have to face, and certainly Rishi Sunak (pictured yesterday) has faced a very deep challenge indeed – first a global pandemic and then a recession. He has handled the situation with great skill
Parts of his speech belonged to an electioneering Budget. Impressive and highly detailed proposals followed each other in rapid succession.
We heard lots of references to an ‘infrastructure revolution’ and of course the big headline – an increase in public spending of £150billion by the end of the parliament.
And he was careful to outline several measures that are possible only because of the benefits conferred by Brexit.
These include the simplification of taxes on alcohol, which ought to prove both popular and efficient, as well as changes to taxes on shipping. Here, he was reaping the advantages of Brexit and was rightly determined to make sure his audience knew about it.
But after highlighting the largesse on offer, the more conservative Rishi stepped forward – not to dampen the euphoria but to make it clear that he will ensure that we live within our means. He announced new fiscal rules, to bind the Government to sustainable levels of borrowing.
But yesterday, as he delivered his budget, it seemed to me that we were watching a very polished double act – ‘The Two Rishis Show’. There was the expansive Rishi, leading us into a Promised Land flowing with milk and honey. And then, popping out from behind him from time to time, there was the fiscally responsible Rishi, the man with a reputation for caution
The charter for these rules will be presented to the House for a full vote, which is probably a crafty way of trying to trap Labour into a guarantee of responsible behaviour.
For many Conservative MPs, the most important part of the speech – what they were waiting for – came when the Chancellor declared he was not comfortable with keeping taxes at their highest level since the Attlee Labour government.
Government spending now accounts for more than half the economy, he said. It’s plain that goes against all Conservative instincts. By the next election he wants to see tax falling.
The question one has to ask is whether this is consistent with the spending announcements. There’s one statistic above all that has to be considered.
Former Chancellor Norman Lamont (pictured) writes that a Chancellor can never ignore the relationship between national debt and national income
A Chancellor can never ignore the relationship between national debt and national income – how much the country borrows each year, against its gross domestic product, or how much money it generates.
At the moment, the stock of debt is forecast this year to be 85 per cent of GDP. Next year, it will be up, at 85.4 per cent… and up again, the following year, peaking at 85.7 per cent.
In theory, if the Chancellor’s predictions are right, the national debt will start to stabilise and fall. For that to happen we must have a really substantial growth of our economy.
But the Office for Budget Responsibility predicts that growth at the end of the survey period will be less than 2 per cent.
The Chancellor also warned us of rising inflation, which was 3.3 per cent in September and is forecast to average 4 per cent next year.
Inflation, as older readers will remember only too well, is profoundly unpopular. It can lead to the phenomenon of stagflation – slower growth plus inflation.
The only real counter to inflation lies in the hands of the Governor of the Bank of England, Andrew Bailey. The Bank has the power to raise interest rates. But the Bank is independent of the Treasury – and Mr Bailey is not part of anybody’s double act.
Interest rates are currently so low that the Bank may be reluctant to raise them much above 1 per cent – too little to make a dent in inflation of 4 per cent.
The Bank suggests the spike in inflation will be ‘transitional’. But how long is ‘transitional’? If international oil prices rise from $84 today to $100 a barrel and disruption to global supply chains continues beyond 2022, then high inflation could be with us for much more than just a few months.
We all want to believe in the new, post-Covid ‘age of optimism’. Let us hope that the forecasts are right and it is the conservative Rishi Sunak – rather than his free-spending alter ego – who prevails.