This week marks two years since Rishi Sunak was thrust from relative obscurity into the political spotlight as Chancellor of the Exchequer. After less than a month in post, he delivered his first Budget. Weeks later, Britain was in lockdown.
How has the ‘Covid Chancellor’ fared in the intervening period? When he was splashing taxpayer cash early on in the pandemic, he was cheered to the rafters. Now, he faces criticism both for holding the line against big spending colleagues, and for presiding over the highest tax burden in several decades.
If Sunak were a speech, his opening paragraph would be full of promises. He’s a low-tax Thatcherite who believes in the power of the free market and champions freeports. He was a lone voice early in the pandemic pushing against more stringent Covid controls. When challenged, he reminded us that ‘Everyone’s job in the cabinet is to provide the Prime Minister with the best advice that they can in their area of expertise.’ It’s hard to imagine that Gavin Williamson was stridently making the case for keeping schools open to protect pupils and their education, or Matt Hancock warning of the problems that were piling up due to the ‘protect the NHS’ mantra.
There has been scant indication that the Treasury intends to end government profligacy
Sunak introduced the widely-popular furlough scheme, which represented one of the largest interventions that a UK government has ever launched in any crisis. Huge swathes of the workforce had 80 per cent of their salaries paid by the state, and since the programme was wound down unemployment has been far lower than many feared.
If that was the good, here is the bad. Even if Sunak calibrated the perfect policy response to the pandemic that allowed workers and businesses to survive, the scale of spending – on top of a mountain of previously acquired debt and liabilities – is enormous. It has been over two decades since any Chancellor balanced the books, and spending is set to jump by £22.9 billion a year by 2026-27 after Sunak’s £25 billion boost to departmental budgets announced in his Autumn statement.
It was Sunak’s Treasury team who also concocted Eat Out to Help Out – a colossal waste of taxpayer money that has since been blamed for accelerating the spread of Covid at the time, thereby hastening our return into lockdown.
When it comes to the economy, it has long been reported that the Chancellor is fearful of inflation. More than a year ago, he began telling colleagues how worried he was about it. But for all this prescience (inflation is set to hit 7 per cent in the spring), there has been scant indication that the Treasury intends to end government profligacy. Just a fortnight ago, for instance, we learnt that £6 billion would be borrowed for the energy rebate package.
The economy is currently caught in a ratchet effect, where every government turn moves us leftwards, yet the current Chancellor is doing nothing to reverse it. He has put Britain on course for the highest tax burden since the 1950s, hitting 36.2 per cent by 2026-27. This April, taxpayers will face a stealth increase in income tax and a hike in National Insurance Contributions. Worse, corporation tax will be raised by six percentage points next year – a decision justified on the grounds that wealthy shareholders will pay, even though much shareholding is by pension funds and similar institutions whose beneficiaries may be far from rich. Much of the hike will be passed on in the form of higher prices or reductions in worker pay. Productivity and growth will suffer.
There’s no indication that the Treasury is exploring tax simplification, of has any zeal for streamlining our increasingly bloated tax code which, at 10 million words, is the world’s longest. It is littered with offsets, loopholes and economic distortions – which are typically exploited by the better off, meaning simplification would be both economically beneficial and politically achievable.
Which leaves the ugly of Sunak’s chancellorship. Whatever unity existed between Numbers 10 and 11 has dissipated in recent months. The Johnson-Sunak relationship resembles the end of the Blair-Brown partnership more than the best years of Thatcher-Lawson. Our Chancellor is barely able to defend government policy, let alone partygate or the Jimmy Savile episode.
Gordon Brown was right when he quipped that there are two types of Chancellor: those who fail and those who get out in time. Since world war two, three former Conservative chancellors have made it to Number 10. If Rishi is to be the fourth, he needs more than that opening paragraph. He needs to stop identifying as a low-tax Tory and become one.
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