Rishi Sunak wanted his Budget next Wednesday (3 March) to be the moment when the Conservatives started to regain their reputation for fiscal prudence by raising taxes. But Boris Johnson’s roadmap out of lockdown will again force the chancellor to put off the evil day.
Corporation tax on company profits will increase from 19 per cent to up to 25 per cent over the next few years, a pill likely to be sugared by higher investment allowances. But other tax rises will be delayed until a second Budget this autumn. Sunak tells Tory backbenchers he has a “moral duty” to ensure future generations are not saddled with debt, and an economic one so the UK has room to cope with a future crisis. But, for now at least, he resembles Saint Augustine, who said: “Lord, make me chaste – but not yet.” Fortunately for him, economists provide cover, saying now is not the right time to hike taxes.
Sunak will have to extend emergency measures, including the furlough scheme, loans and VAT cuts and business rates holiday for some sectors, until the end of June as the roadmap envisages the lifting of restrictions by 21 June. Tory MPs have warned the chancellor that firms in their constituencies are clinging on by their fingertips and will go under unless his “bridge” to the post-Covid world is extended.
Johnson is talking up a “plan for jobs”. Sunak will announce a boost for tech and green jobs and an expansion of the job help scheme after yesterday’s unemployment figures showed the jobless rate among 18-24 year-olds has risen to 13.4 per cent. Ministers will trumpet the Budget measures as showing the strength and benefits of the union, as they fret about the Scottish parliament elections in May.
Although Sunak will also want to describe his Budget as a “plan for growth”, business figures are surprised there is so little debate about a fiscal stimulus in the UK when Joe Biden is injecting $1.9tn (£1.3tn) into the US economy. True, Sunak can point to £300bn of coronavirus measures. If anyone had told the fiscal conservative he would do that when he became chancellor a year ago, he would have told them they were completely bonkers. But this crisis has changed the Tories. Even if Sunak eventually starts to fill a hole in the public finances estimated at £400bn in the current financial year alone by raising capital gains tax and cutting tax relief on pensions, the repair job could take 10 years.
So the Tories will remain committed to a big state, big spending approach, despite calls from their right-wing MPs for a return to the party’s traditional small state agenda. Ministers view the development of the Oxford vaccine as a model for an interventionist future based on state support for the private sector and a more agile regulatory regime than the EU’s.
Behind the scenes, Labour agonises over how to exploit what it sees as the Tories’ weak spot: the internal tension between their commitment to fiscal rectitude and high spending. But there is less space for Labour when big spending and activist government are the order of the day in Toryland. Shadow cabinet members believe the pandemic has shown the need for a “1945 moment” of huge structural change, which is Labour’s natural turf. But the Tories hold the ring. They don’t need to hold a general election as Winston Churchill did. There is no law to prevent the Tories stealing Labour’s clothes.
Labour has its own dilemmas: it can’t attack the Tories for spending too much, but how does it reject austerity while proclaiming its post-Corbyn commitment to fiscal responsibility? There is a case for a Biden-style fiscal stimulus, but will a cautious Labour leadership be prepared to make it next week?
Keir Starmer attacks 10 years of Tory austerity as a political choice but in the voters’ eyes, Johnson is leading a new government. The prime minister claims he opposed George Osborne’s austerity measures at the time. That’s not how ministers remember it, but the public will judge Johnson on the present not the past.
Labour needs the real Rishi Sunak, the fiscal hawk, to stand up, but it won’t happen next week. Perhaps it never will. Johnson has already blocked Sunak from making unpopular tax rises, ruling that the Tories’ 2019 manifesto pledge not to raise the rates of income tax, VAT or national insurance is sacrosanct. Ditto the triple lock on the state pension.
Labour must communicate a clearer economic message. When Anneliese Dodds, the shadow chancellor, addressed a webinar last night held by LabourList and the UK in a Changing Europe think tank, the most common question from her audience was: “How do you compress the economic strategy into a format that those who aren’t ‘tuned into’ politics will both understand and hear about?” Dodds didn’t have many answers.
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