Can Rishi Sunak save the nation’s finances without ending his career?
As Lamont discovered to his cost, the voters don’t always reward chancellors for honesty
Time was when the chancellor of the exchequer was neither seen nor heard for weeks before Budget day. He (and it has always been a he) was in purdah, a self-denying ordinance intended to stop him inadvertently blurting out the contents of his financial package. Occupants of No 11 who had done so, like Hugh Dalton in 1947, resigned.
Kenneth Clarke’s Budget in 1996 was leaked almost entirely to the Daily Mirror, which showed a level of publicspiritedness never likely to be repeated by returning some of the documents unpublished to the Treasury. Nowadays, no subterfuge is needed because the source of the information is invariably the chancellor himself or his advisers.
I thought Rishi Sunak had reverted to the old way since he largely disappeared for a while, though that absence was attributed to his being despatched to outer darkness for complaining that the “goalposts” were being moved in the lockdown debate, as indeed they were. But in the past week he has popped up everywhere, not least on Twitter, which politicians still seem to think is the way to interest young voters. He also appeared on various TV chat shows on Sunday, though largely to say he could not disclose what was in the Budget – except that “Treasury sources” then did precisely that by confirming he would be freezing fuel duty for a year.
This seems an odd decision. The Treasury had let it be known that a fuel tax rise was in the pipeline (so to speak) and most Tory MPS, if not the country, were reconciled to it. This is the Government’s big “green” year, with the UN climate change conference in Glasgow in November seen as the centrepiece of Boris Johnson’s calendar. Loading costs on motoring would seem to fit in with that agenda but would be a deeply unpopular move as previous governments have found and as Emmanuel Macron saw with the gilets jaunes protests in France over fuel prices. The Treasury also has a long-term problem with fuel revenues because of the switch to electric cars.
But there comes a time when being popular is no longer possible for a chancellor. The consequences of economic decisions must be faced; the question is when. Some politicians like to put them off and hope for the best. Mr Johnson falls into that category.
Mr Sunak, by contrast, seems to be more strategic in his thinking. He has been accused of wanting to put up taxes now so that he can cut them again in a pre-election handout of vote-winning goodies. Labour is so terrified of this prospect that it is campaigning against tax rises, not because it doesn’t want them but because it wants them forced on the Government in a year or two. The Tory case for delaying is to prevent economic growth stalling after the pandemic. Labour’s case is purely opportunistic.
Of course finance ministers are going to take decisions for political reasons but they also need to look after the nation’s coffers and these have been mightily depleted over the past year. We should remember that the fuel tax escalator was part of the 1993 Budget which also took place in a recession, with Norman Lamont battling to bring the public finances under control.
The recently published biography of Jeremy Heywood, the former Cabinet secretary, recalls the discussions in the Treasury that year when he was the chancellor’s private secretary. At the time, levels of borrowing were higher than at any point since the IMF crisis of 1976, though a mere bagatelle compared to now. As a sound-money Conservative, Lamont was determined to bring the deficit under control to avoid a repeat of the Callaghan government’s ignominy.
As Mr Heywood remembered it: “The Chancellor wanted a few bold changes rather than many small increases. He felt the least unattractive was an increase in National Insurance – partly because this was less visible than an increase in income tax – combined with an increase in fuel duty and the imposition of VAT on fuel.”
When the package was announced the roof caved in and the fallout contributed to the pressure that had been building on Lamont since the ERM debacle, forcing him out a few months later. But his Budget paved the way for an economic recovery and a significant improvement in the public finances. Perversely, it was Tony Blair who benefited, winning the 1997 election in auspicious economic circumstances. Taking the right decisions is not always appreciated by voters when there is pain involved.
So where does Mr Sunak stand? Instinctively he appears to be a fiscal conservative but one constrained by the requirements of dealing with the pandemic. The problem is that the Tories won the 2019 general election on a cake-and-eat-it platform of higher spending and frozen taxes, something that is only possible if revenues pour into the Treasury. This seems unlikely because even a post-covid surge in activity will still leave hundreds of thousands out of work, which is a cost on the state.
Old school Tories like Ken Clarke and William Hague, writing on this page yesterday, are challenging the assumption that we can have the biggest cut in output for 300 years, run up a deficit close to £400 billion and not have to pay for it at some point. But now is not the time because tax rises would kill off the recovery. Moreover, the real Tory nightmare is that interest rates will have to go up to dampen inflationary pressures, making the ballooning debt expensive to service.
The expectations are that Mr Sunak will put off the reckoning for now but he cannot do so indefinitely. He needs a narrative that counters the pressure, not least from his Downing Street neighbour, for a bigger state but it is hard to see how that can be constructed in these circumstances. We need something akin to Geoffrey Howe’s 1981 Budget which began to wean the country off the vast amounts of public spending to which it had become accustomed, as it has once more.
That hugely unpopular Budget almost broke the Thatcher government but she and her chancellor were determined to see it through together. This time, we have a Prime Minister who wants to throw an avuncular arm around the country while Mr Sunak needs to lift their wallets. It’s not going to end well.