Sunak needs an iron will to defeat the demand for endless spending

Tories should overcome their regret over cuts to areas like international aid and back the Chancellor

By the time Rishi Sunak delivers his statement on government expenditure tomorrow, he will have discovered a chilling truth about the job of Chancellor of the Exchequer: that when it comes to restraining the relentless growth of spending he is pretty much on his own. MPS who support financial responsibility in general rarely want it to apply to their constituency in particular. Cabinet ministers who signed up to balancing the books chafe against limits on their own departments. Opposition parties join every campaign for more money. And even prime ministers often press their chancellors for resources for their cherished projects, a tendency to which Boris Johnson does not appear to be immune.

From Roy Jenkins in the Sixties, through Geoffrey Howe in the Eighties, to George Osborne 10 years ago, chancellors who need to hold down spending expectations have to show an iron will. The discipline they exert is only appreciated years later. Chancellors who let spending rip, like Tony Barber and Gordon Brown, were cheered on at the time but are seldom highly regarded in history. It is a fair bet that Mr Sunak will want to join those of his predecessors who showed that discipline can be restored, even as those around him clamour for more money, and that the runaway train of government spending in the current year does at least possess brakes.

The figures of what has happened in the pandemic are beyond any previous imagination – perhaps over £350 billion to be borrowed this year, raising our national debt to over 100 per cent of the country’s income for the first time since 1960. Despite the horrendous numbers, this has been the right thing to do; the hugely expensive furlough scheme has kept businesses alive and jobs intact, and the vast spending on healthcare has been vital to help NHS workers and patients through the crisis. The Bank of England has obliged by buying up most of the debt, in effect creating the money.

Much of that spending will continue into next year. Again, this will be entirely justified as mass testing begins to offer hope of getting people back to work and the largest ever programme of vaccination starts to be rolled out across the nation. All of this comes on top of the “end of austerity”, with big increases in the spending limits of government departments, announced late last year before anyone knew Covid-19 was on its way.

Even in the midst of this continuing avalanche of largesse, it is important to see the dangers looming – dangers that are psychological, intellectual and political. The psychological danger is that all sense of restraint is lost, that we have borrowed so much that a little more can’t possibly make a difference. The intellectual one is that those who argue that central banks can always print the money we need begin to hold sway, and that the lunacy of so-called Modern Monetary Theory seems vindicated. And the political danger is that even Conservative MPS and ministers cave in to every campaign for spending, leaving them vulnerable to each new demand.

These dangers are already materialising. It is not fashionable to argue for restraint, so we should be clear why it is necessary.

First, it is one thing to borrow to finance a hopefully one-off event, but quite another to borrow more permanently after that. That is like being granted a mortgage and then assuming that you can spend more than you earn for the rest of your life. Secondly, the Bank of England cannot always conjure up the extra money without ultimately debasing the currency. Thirdly, that means savers and investors still have to finance future deficits – if they consider the UK’S finances to be credible and sustainable.

Of course, taxes can be raised in future, in theory at least, to control future deficits. That is no doubt what the Labour Party would do. But the Chancellor will not find it easy to increase taxes in an instinctively rebellious Parliament, and higher taxes are hardly the recipe for a bright and attractive future for Brexit Britain. Then there is the risk of fuelling future inflation – a dormant volcano that too many people assume to be extinct. Economists differ greatly in their views of what to expect but it would hardly be surprising if the pumping out of unprecedented quantities of money all over the Western world produced – once vaccines get everyone moving again – a surge in prices, with all the dire consequences that would bring.

The only sure way to live with a massive increase in debt is to be much more productive. Whatever the Government invests in raising the skills of the workforce, strengthening the science and research base of the country, and providing infrastructure where it is lacking, that will be well worthwhile. Yet it cannot be the purpose of a Conservative Government to preside over a vast extension of the size of the state – on some estimates heading up from 40 per cent to nearly 60 per cent of GDP this year. That will need to come down with a bump to be compatible with an enterprise economy.

So if Mr Sunak tells the Commons tomorrow that some areas of spending have to be held back, constrained or reduced, Conservative MPS should steel themselves to support him. There is a strong case to develop in the UK a more decentralised state, with money spent more creatively and less wastefully than at present, but any such effort will take years to bear fruit.

In the meantime, control will have to be exerted. If the Chancellor freezes pay in some of the public sector, that should be supported after a year in which the private sector has seen many businesses closed and employees lose their jobs.

If he decides, as is also rumoured, to reduce overseas aid commitments, that will bring much regret from those of us who have always supported the current level of development aid. But we should overcome that regret, along with misgivings about any other reductions or savings of which we have not yet heard, to support a serious effort to show financial responsibility at an exceptional time. Someone has to draw a line and hold to it. When a Chancellor does so, the response should not be picking and choosing, but relief that he has the will to do so.