This is going to be a weird Budget Day. After seven days of pre-Budget announcements from the Treasury Politico has summarised the announcements made:
HMT [has] already committed to increasing the minimum wage … ending the public sector pay freeze … £7 billion on new transport links … £6 billion more on the NHS backlog … £5 billion on science research and development … £3 billion on skills … £2 billion on new housing … £2.6 billion on special educational needs schooling … £1.4 billion on boosting foreign investment … £700 million on borders and £500 million on families.
No wonder the Speaker is a little annoyed with Sunak. No budget has ever been leaked this much.
Now we also know that the Office for Budget Responsibility has increased its growth forecasts for the year to 7%, suggesting the country will be back on pre-Covid track soon. This, supposedly, gives Sunak up to £30bn more to spend, or save. I suspect the latter: there will be a new fiscal rule after all, requiring that the current spending budget be balanced whilst borrowing remains permissible for capital costs - which many of the pre-announced sums will be deemed to be.
We are also told today that this is a Budget for a new optimistic era. It's widely presumed that an announcement on universal credit will try to assist the mood; the most likely change is to reduce the taper rate so that as people move into work they are not penalised so heavily by losing their benefit payments. We will see.
I personally still expect a Tory crowd pleaser. A cut in inheritance tax would do that.
I do not expect any change to capital gains tax, which the Guardian has focussed on today.
But what strikes me most about all this is its totally lack of reality. Sunak can say there is a new mood of optimism, but there isn't. Retail sakes have fallen for five months in a row. There is discussion in more Covid restrictions, which most people want. There are 50,000 Covid deaths a year right now, at current rate. The NHS, like many public services, is overwhelmed. We can't even manage sewage any more. And there is economic disruption as a result of Brexit causing inflation, which other factors like gas prices are boosting.
None of this reads like grounds for optimism to me. They read like the exact opposite.
Sunak is gambling his political future on growth when that's going out of fashion. He's ignoring climate change. He's presuming that he can read runes better than the country can, when the very strong evidence is that ordinary people read economies better than politicians do. He's hoping there is a rabbit to pull out of the hat when it's not at all clear that there is.
There might well be recession and downturn instead. Supply chain disruption will not end. Price increases might end next year, but if pay most likely does not fully adjust people will be worse off anyway. The universal credit problem that indicates a chronic poverty problem in the UK is not going away. And the signs of optimism will fade with every reduction in the chance of what people think to be a normal Christmas happening, and even the turkey is in doubt this year.
Sunak has, I think, got his reading of the economy wildly wrong. We have an economy far from over Covid, and far from being on a real rebound. It is out of sync with itself. Brexit stops it being in sync with the world. Investment is needed, but much more by the state than private sectors. The private sector is not going to invest for climate change as the government believes. People will despair (literally) about that.
This Budget is by far the most trailed ever. Brand Rishi is pushing it hard. But the position Sunak is taking is so extreme this Budget could unravel very quickly, starting with public reaction to an unnecessary increase in interest rates that might happen very soon, which will be intended to dampen any mood of optimism, and surely will.
Sunak is playing a high stakes game. I think he has seriously misread the hand he has been dealt. The trouble is, we pay the price for that.
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I agree, however, the Tories keep polling well, and people I speak with (beyond my friends) see the government “doing their best” and that “no one could have seen this coming” despite centuries of dealing with pandemics, a known international response, and the evidence that countries have dealt very well with this and still are. The general level of ignorance is astonishing, and the absence of reading beyond the MSM to learn about the world and people, is truly sad. If there is a recession, mass unemployment, NHS failure, and so on, the Tories and the media know how to spin this as events, even though it all rests with government ultimately. What seems to matter is media narrative and that currently is far from the truth. Even the catastrophe of Brexit won’t harm the Tories, after all, they delivered it and the blame can be laid at the feet of the rest of the world for standing in our way. At the heart of all this seems to be the myth that tax funds spending and in hard times the cupboard is bare. Where people think money comes from or goes, I haven’t the foggiest. But, that myth will always let the Tories off the hook. I think, then, however bad this turns out, however many times Sunak changes the budget, he can be viewed as a hard-pressed, responsive chancellor trying his hardest in the hardest of times (that have had nothing to do with govt so far!).
I agree with Mr Willett’s confirmatory post of your post above.
All I would offer is the following. I do not think Sunak has mis-read anything however.
There is some sort of signalling going on this budget and I’m not sure who it is aimed at.
Markets? The public? Funders/donors? Tory back benchers who hate Covid but are dealing with red wall areas? And this leaking business looks interesting and gives us a clue as to why it has been done. It’s populist I think in nature.
Politico’s summation looks generous prima facie in places to the public at least (but just £500 million for families?!) And how much of this actually new money? Is Sunak robbing Peter to pay Paul?
Looking back at austerity and what has been taken out since 2010 – it’s nothing is it?
Another way of looking at Sunak is that he is an anti-State chancellor in an anti-state party who is in the position that he knows he has to do something – or be seen to be doing something to keep up the ‘we’re doing our best’ trope . The markets (and if he knows anything – he knows how and why they work for sure) are not going to come to the rescue.
So to me, Sunak has no choice. The markets he and his fellow numpties love will not come to his aid. Sunak has to do something therefore which is why he is more knowing that we might suggest. But not too much – it has to be in the bounds of his limited understanding of his role. And he does not wish to make Government look too good eh – a tightrope that many a Tory Government has to walk when there is a crisis.
Today’s budget I offer, is is not about understanding the economy; it’s more more about showing this homicidal Government in a good light in a tight spot only they have put themselves in.
And the 7% growth ? Outlandish – it’s either desperation or proves that BREXIT boosterism is the default position of the Tories.
This is not an economics budget. It’s political one – pure political theatre.
It is pretty obvious that the Budget and Spending Review is merely a large-scale PR exercise to make out the Tories are “doing something”. It is clear from the paltry sums given to really critical sectors such as climate and social care that their priorities are not focused on what are the real priorities. Extra NHS spending is merely compensating for the 11-year austerity cutbacks, the minimum wage is a joke with the present inflation rate.
The UK may achieve GDP growth of 7% in 2021. But it suffered a decline approaching 10% in 2020. Even dead cats bounce. We are not back to where we started 2 years ago.
And the upsides and downsides are not distributed evenly – some have benefitted from chunks of COVID funding or inflated asset prices; others have lost jobs and businesses.