This spending splurge cannot end well
Rishi Sunak’s appetite for massive new public expenditure appears to be a long way from being exhausted. On Thursday, he boasted that the Tories were spending more than the Labour Party would have done. Yesterday, he hinted that there could be even more to come. A party that once lauded the virtues of the unemployed getting on their bikes to find work is now openly paternalistic, promising to protect people from life’s difficulties and trusting in the power of the state to do so.
It may be that the Government thinks it is tapping into the national mood. The risk of offering such considerable financial support during the pandemic was always that the public might expect it again when another crisis hit. The Gordon Brown years, meanwhile, saw the entrenchment of a culture of entitlement, as well as a benefits system that considers it normal even for people in work to receive help from the state. Years of ultra-low interest rates may have lulled some households into a false sense of security about the sustainability of high debt levels.
But the price for all this will have to be paid, and it is a fantasy to think that it can be borne solely by energy firms, or the wealthy, or some other sector that is deemed to have earned “excess” profits. Energy-generating companies have already been warned that they, too, face a windfall tax, which might be how the Chancellor plans to fill the hole in his spending plans. But after a while, the arbitrary expropriation of profits will lead to an exodus of capital and talent.
If Mr Sunak does decide to proceed with another tax or to further increase support for households, then he should hold an emergency Budget. Individual measures, like support with energy bills, may make sense when considered in isolation, but the cumulative effect could be disastrous if they embed higher inflation or result in permanent increases in the size of the state. The Chancellor should be obliged to explain how he will revive economic growth, and all of this ought to be analysed independently by the Office for Budget Responsibility. It is not acceptable for huge new tax and spending commitments to be rushed out, in part to shift attention away from the Government’s other woes.
Under the Conservative Government that delivered Brexit, the UK is moving inexorably towards becoming a Europeanstyle economy, with associated levels of tax and spending. Ministers are keen to reassure Tory supporters that this is still an administration that believes in low taxes and is committed to free enterprise and individual responsibility, and that they have only strayed from those values because of the extraordinary times we have been living through. That is becoming ever harder to believe. defence. Nations, including the UK, the US and Poland, have continued to keep up the supply of armaments. However, other parts of the Nato alliance have dragged their heels. The German Chancellor, Olaf Scholz, said this week that “Putin cannot win this war”, but that statement does not sit comfortably with his country’s reluctance to end its reliance on Russian hydrocarbons or to back wholeheartedly the Ukrainian war effort. The language of concessions emanating from the Elysée, meanwhile, borders on appeasement.
The Ukrainian president this week asked for more heavy weaponry to halt the renewed Russian offensive. He also set out the broader stakes in this war. What is being decided is not just the fate of one country, but whether brute force should be allowed to rule the world. It is alarming that some of our allies seem incapable of seeing this clearly.