A Treasury borrowing binge is ‘unsustainable’ – but it will probably still happen

The IFS has advised the chancellor Rishi Sunak that he will have to raise taxes to avoid breaking his fiscal rules. In which case expect No 10’s ‘stooge’ to start ripping up the rulebook, says James Moore

Will Sunak defy Cummings and Johnson? Unlikely (EPA)

Rules? Rules? Who cares about rules.

The Institute for Fiscal Studies has laid out three options for Rishi Sunak, the man whose official title is chancellor of the exchequer but for whom the word “stooge” has often been used, given the current official fiscal rules he’s supposed to be operating under going into the Budget.

His first option is to entrench austerity. We can probably bin that. It would be brutal, cruel, and damaging to the economy and there’s a decade’s worth of evidence for that.

Of course, those things haven’t stopped the Conservative Party in the past.

But Boris Johnson wants us to believe that he’s a different kind of Tory. A “Brexity Hezza” (meaning Micheal Heseltine). More austerity is not what you’d expect from that sort of person and probably not what most of his new voters were expecting either.

That leads us to option two: Raise taxes.

Oh dear.

The Tory manifesto didn’t promise much but it did take a firm stance on ruling out increases to income tax, national insurance or VAT. The options for Sunak are therefore limited.

He could raise fuel duty, and he should.

It would produce a decent slug of revenue. It’s green. And having been frozen since the Tories came to power in 2010, it’s long overdue.

The failure to increase it has denied the government billions of pounds in revenue that could have eased the impact of austerity.

But the prospect is already leading to rumblings of discontent among some Tories, particularly those elected to represent previous Labour seats, who’ve written a letter to Sunak to express their opposition to the idea.

Abolishing entrepreneurs’ capital gains tax relief and hiking council tax bills faced by those in more expensive properties have some potential.

The first of those would produce howls of outrage from parts of the business lobby and possibly the Tory press too. The latter is likely to get more of a hearing than the former but it’s been well trailed so it might actually happen.

The second is basically a mansion tax variant, and a form of wealth tax, much in vogue right now.

It has much to recommend it, but history tells us that trying to tinker with property taxes is a dangerous business. Yes, we’re in the first year of a new parliament, which gives Sunak leeway, but there’s a reason previous attempts to institute revaluation exercises for council tax purposes have floundered.

On to option three: Tearing up the rulebook and indulging in a borrowing binge that torches the past decade of rhetoric about why people have to suffer horribly because we have to make the budget balance and live within our means.

The rule book has, actually, already been torn up several times. If you recall, the Budget was supposed to be balanced at the end of the first Tory-dominated parliament and we’re still not there. So there’s a very strong chance that the rules, such as they are, are going to change because care to guess which one will go down best with the people who count? In other words, with Johnson and his svengali Dominic Cummings to whom Sunak plays stooge?

Hey, graduates. Want to work in a part of the government machinery but don’t much like the idea of being bullied by the psychopaths that run the place? Can I interest you in a career in the Debt Management Office?

You’ll be working your tail off, but they’re probably going to be nice to you because they’re sure as hell going to need you.

This, chides the IFS, is not a sustainable strategy and it doesn’t even mention Brexit, which is going to kick the economy, and thus tax revenues, in the guts.

Sunak may have heard something similar from some of his advisers. Probably those who’ve been quietly lining up alternative employment.

We’re about to find out if they’re right.

Take note of the consequences because Johnson/Cummings/Sunak could yet definitively disprove the myth of Tory economic competence (if that hasn’t already happened). Every cloud has a silver lining and all that.