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Evening Standard Comment: Rishi Sunak acted decisively but now we need a big vision for our future
Sunak acted decisively but now we need a big vision for our future
Rishi Sunak delivered an accomplished and confident performance yesterday, and there is plenty to welcome in this Budget. The Chancellor is right to continue with the economic support that has been in place throughout the pandemic.
Indeed, the Budget raised coronavirus spending by £65billion to more than £350billion. Sunak has acted decisively and learned the lessons of his mistakes of last autumn, when he sought to end Covid support schemes too early and was forced into a damaging last-minute U-turn.
The Chancellor has turned classic finance minister logic on its head. In normal times, governments raise taxes early in a Parliament in order to cut them closer to an election.
This is partly political — pre-election tax cuts make governments more likely to be returned to office. It is also good practice for less partisan reasons, as it is easier to raise taxes early in a Parliament, when governments are generally more popular.
But Sunak is committing to raising taxes later in the Parliament and spending now. The Chancellor would say this is what the economic situation demands. He is taking a calculated risk, both with the British economy and with his thinly veiled ambitions for higher office.
Consider a situation two years from now, where the economy is not firing as brightly as the Office for Budget Responsibility had predicted. Is Sunak really going to raise corporation tax to 25 per cent then?
On the flip side, he could get lucky: the economy recovers more quickly than predicted (and some are predicting this — the same happened in 2013) and he does not have to go ahead with all the tax rises. He might even get to reverse some before a general election.
It is one heck of a gambit. The equivalent of us spending big now with the hope we have a bigger job and bigger pay packet two years down the line.
Sunak has bet the house on growth. And rightly there are a number of intriguing proposals to boost this, from a British Investment Bank to the super-reduction for capital investment, and there are some big manufacturing companies around London and in the South-East that will benefit.
But there was precious little for services, which comprises 80 per cent of the British economy and got nothing out of the trade deal with the EU.
There was little for the capital to cheer. A freeport for the Thames Estuary was a rare explicit positive from a Budget that made no reference to Brexit and the severe problems it has causes businesses, not least those in the City. Elsewhere, whatever happened to the big infrastructure plans both here and in the North?
Then there is the spectre of inflation. As the Chancellor pointed out in his speech, while interest rates are affordable now, inflation may not stay low forever, and a one per cent increase in both would cost the Exchequer more than £25billion. There are fears the US’s massive $1.9trillion stimulus package could stoke global inflation.
The nature of a Budget is that it sets out plans for the near-term. The reality is we will be paying off debts accrued during the Covid crisis for decades.
There are other concerns. As the OBR set out, the Government’s spending plans make no explicit provision for pandemic-related costs beyond 2021-22, despite the roadmap acknowledging that annual vaccination programmes and continued test and tracking are likely to be necessary.
This means that the economic figures are likely to be even more challenging than they first appear. Britain should have a permanent vaccination and testing facility. Instead of hiding in the figures, lets plan now and learn the mistakes of this pandemic.
Ultimately, there is a huge amount here to like but we need, soon, the big plan. There is still much we do not know about his post-Brexit economic plan for Britain and its cities, including London. Surely not just pork-barrel spending in Conservative-held seats in the North?
The various plans to help small businesses was a positive. But again where’s the big vision? Are we going to be a high tax interventionist government (which was arguably always a consequence of Brexit) or is it a low tax Singapore-on-Thames vision that he has spoken about in the past but his Budget does the opposite of.
The UK economy is powered by our great cities and service sectors. How can you have a vision for the UK economy without knowing how to sell services, our biggest market?
There are good ideas to build on in this Budget, from the UK listing review led by Lord Hill and the Kalifa review of FinTech, that could bolster that big vision. But we need more of it — our future prosperity depends on it.
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