Kate Andrews has narrated this article for you to listen to.
At first, it seems to make no sense. Britain is in the middle of the worst economic crash in recorded history, with a Chancellor who is famously keen on low taxes, spending control and sound money. But Rishi Sunak this week presented a Budget that seems inspired, in parts, by Labour’s last manifesto. Debt surging to £2.8 trillion. Public spending up by a quarter in a year. And taxes: soon going up. Corporation tax, freezes to the personal tax threshold.
The explanation most Tories comfort themselves with is that Sunak wants to explain to a high-spending Prime Minister that today’s cash splurge is tomorrow’s tax rise. But in truth, Sunak is motivated by something else. It’s not dreams of fiscal sanity that are driving him towards austerity, but nightmares about a far more immediate concern: an inflation resurgence that could crush Britain’s economic recovery and follow the pandemic with a financial crisis. If so, he worries he would have no reserve parachutes left to pull.
Worrying about inflation might seem strange, even quaint, in a country that has known barely any for almost a generation. When Sunak was born, in 1980, inflation was about 17 per cent — with interest rates and government borrowing costs around the same level. This was the great Thatcher–Reagan mission: to tame inflation, restore faith in money and protect savers. It worked. By the turn of the century, rates were on the floor. Central banks are now tasked with a mission: to use whatever tools are needed to keep inflation stable.
Today’s trifecta of low gilt rates, interest rates and inflation means that no one bats an eyelid as Sunak borrows roughly £1 billion a day, or announces giveaways amounting to £65 billion additional spending.
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