The squeeze: how long will the pain last?

Rishi Sunak has ushered in a new era of austerity, not just Osborne-style spending cuts, but tax hikes as well. His Chancellor, Jeremy Hunt, says the plan is not just to balance the books but to control inflation, and so this will be the theme of the Sunak years: Austerity 2.0.

Throughout the leadership campaign, Sunak repeatedly argued that persistent high deficits were no longer an option. Difficult decisions lay ahead, he said, and claims to the contrary were ‘fairy tales’. His critics said this was a safety-first ‘Treasury view’, and Britain had plenty of scope to borrow more. But Sunak was certain that the debt racked up during the pandemic – not just by Britain but countries the world over – guaranteed a wake-up call at some point. The call came when Liz Truss and Kwasi Kwarteng tried to keep up the borrow-and-spend agenda. Now Sunak and Hunt are trying to respond.

The solutions they propose won’t be pretty. Britain appears to be entering into a phase – under the Tories, no less – where taxes are going to keep creeping upwards until growth trends improve. It’s no sort of solution, as the former rarely leads to the latter. Where will growth come from? And is there any end in  sight to the misery?

This is the missing piece of the puzzle Sunak has yet to find, despite the urgency that he does. Hunt’s Autumn Statement came alongside news that inflation hit 11.1 per cent on the year to October, outpacing predictions yet again. The Bank of England’s growth forecasts run to 2025, by which time it expects the UK to be the only major country whose economy will not yet have recovered to pre-pandemic levels. We’re not just looking at the worst growth rates in the G20 or Europe, but anywhere in the developed world.