Chancellor Sunak made much of his attachment to fiscal prudence in the run-up to last Wednesday’s budget – so much so that balancing the books seemed to become a moral crusade.
This worried a lot of people. As that great Treasury permanent secretary of yesteryear, Sir Douglas Allen (Lord Croham) once observed: what matters is not balancing the budget, but balancing the economy.
Now, I seldom find myself in agreement with anything propounded by the extreme-right Brexiters who constitute Alexander Johnson’s cabinet but I was delighted to hear my friendly acquaintance Kwasi Kwarteng, the business secretary, make the point forcefully: “Don’t crush the recovery before it’s happened.”
Well, with masses of extra spending, Sunak seems to have got the message that his predecessor George Osborne was wrong to embark on the austerity programme of 2010-15 when the recovery from the banking crisis of 2007-09 was far from secure. One of the many consequences was to leave Britain’s hospitals inadequately prepared to cope with the demand for hospital beds when the plague struck.
So, after the 10% plunge in gross domestic product last year, and a forecast from the Office for Budget Responsibility of a mere 4% recovery this year, Sunak is continuing with measures to support most – but, as we can tell from many a howl of protest, not all – of the economy. And by the way, this is not so much government largesse as compensation for losses resulting from an enforced shutdown of the economy that was aggravated by the incompetence of the government.
Nevertheless, much is being made in the media of the apparent contrast between the present chancellor’s real beliefs – in a low-tax, low-public-spending, rightwing paradise – and his current high-spending image, magnified by a bizarre self-promoting video that he had the effrontery to publicise as a Treasury production.
But with the well-publicised personal and corporate tax increases planned for what he hopes is a fully recovered economy, Sunak wishes to prove in due course that he has not lost the fiscal faith.
The trouble is that, with his medium-term plans to return to what he regards as fiscal prudence, Sunak is missing one vitally important point. One of the lessons of the impact of Covid-19 and the manifest long-term pressures on the health service is this: once the economy is on an even keel again, there will need to be an increase in taxation – probably, and appropriately, via national insurance – to finance the NHS properly.
Now, although my old enemy Johnson maintains that the days of austerity are over, one should beware: as the retired French ambassador to the UK has recently reminded us, Johnson is a pathological liar. The fact of the matter is that the austerity policy persists, with savage cuts in central government grants to local authorities, the social services, the criminal justice system and countless other areas.
It is all made much worse by the impact of Brexit, of which Sunak was an ardent supporter. We have known for some time that the combination of the financial crisis and the subsequent austerity produced a situation where, before the onset of the plague, GDP was running at some 20% below what one might have expected if historical trends had continued. The OBR thinks the permanent impact of Covid will be to knock a further 3% off GDP.
The thinktank UK in a Changing Europe calculates that the self-harm from leaving the single market will amount to a loss of 36% on our exports to the EU over 10 years, and a loss of 6% in incomes per head – on top of that 3% from Covid.
By the way, the only reference to Brexit in the budget speech was Sunak’s claim that leaving the EU freed us to have the freeports with which he is so obsessed. From a man who keeps boasting about his honesty, this was a whopper. There are several freeports within the EU, and the UK had some too until the policy was abandoned.
The empirical evidence suggests that freeports are not a great source of new investment; they merely divert the location of planned investment. As for the precious new National Investment Bank, we already had a perfectly good source of such investment via our membership of the European Investment Bank – abandoned thanks to the folly of Brexit.
Oh, I nearly forgot to mention “levelling up”. There is nothing new under the sun. In his memoir As It Happened, Clement Attlee, Labour prime minister 1945-51, referred to “a great levelling-up of conditions”, saying “the great mass of abject poverty has disappeared”. He cited “full employment and the development of the social services”.
He was writing in 1954. What has gone wrong?