Over the past eighteen months, Chancellor of the Exchequer Rishi Sunak has spent hundreds of billions of pounds to prop up public services, people’s wages, and businesses. Clearly focussed on the post-pandemic rebuild, yesterday’s budget was Sunak’s first opportunity to move on from crisis-management mode and set the tone for his chancellorship.
Tasked with balancing the Prime Minister’s big-spending ambitions against his own hawkish instincts and those of his fans in the Conservative Party, Sunak wanted to present himself as fiscally responsible while also going on a spending spree. On the one hand, he has upped public spending, with increases to the minimum wage and billions pledged to clear the NHS backlog, boost skills, spur innovation, and much more. On the other, Sunak promised to restore sound public finances after record borrowing, unveiling plans to put a “ceiling” on future spending and committing to running a surplus by the end of this Parliament. Marrying politics and economics has always been a challenge for ambitious chancellors and this was especially true for Sunak.
Scaling back the controversial £20 cut to Universal Credit (UC), Sunak announced a surprise change to the UC taper, reducing it from 63p to 55p, enabling workers to take home 8p more of an extra pound earned. Work allowances for eligible claimants will also go up by £500 a year. Although these changes mean that two million people could be better off, another two million will see no benefit because they either do not work or do not earn enough. The Government has already defended its decision, arguing that the £20 UC uplift was always a temporary measure and that the best way to address poverty is by getting more people back into work. Perhaps – but of the 5.8 million people claiming UC, 1.3 million of them cannot work due to sickness, disability, and caring responsibilities.
Sunak’s speech was also notably light on fresh green policy and net zero pledges, despite being delivered only days ahead of the historic climate summit COP26. His decisions to cut air passenger air passenger tax for flights within the UK – which are already far cheaper but more polluting than trains – and freeze fuel duty for the tenth year in a row have prompted a fierce reaction from green campaigners. Green Party MP Caroline Lucas lamented the “climate-shaped hole” in the Chancellor’s speech, whilst Greenpeace said the climate emergency should have been its “centrepiece”.
Nonetheless, many will be pleased to see Sunak add substance to the Prime Minister’s plans to level up Britain and create a “high-wage, high-skill” economy. But how will he pay for it? A closer look at yesterday’s spending announcements shows many re-announcements: for example, £6.9 billion for transport projects has turned out to be just £1.5 billion of new money. Sunak is also buoyed by new Office for Budget Responsibility forecasts that show significantly faster-than-predicted growth. Striking an upbeat tone, Sunak heralded “an economy fit for a new age of optimism”, but against a backdrop of labour shortages, supply crises, soaring energy bills and rising inflation, many households might struggle to connect the Chancellor’s rhetoric to their own lived reality.
Overall, the politics of yesterday are clear – big spending to level up the economy in the new Tory seats beyond the “Red Wall”, putting the opposition in an increasingly difficult position, tax rises such as the recent NI hike now but leaving room for (some) tax cuts before the next election, Sunak flirting with Thatcherite Tory backbenchers by suggesting he does not really want to do any of this – but the economics of the future are uncertain. The government is backing the economy to grow enough for this spending to make a demonstrable difference in people’s lives. But is there enough time for this to take effect before the next general election, especially with threats such as creeping inflation and fiscal drag lurking around the corner? Time will tell.
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