Rishi Sunak needs to tell a story if he wants to keep a hold on the economy
In an interview with the Sunday Times earlier this month, Gordon Brown gave a quote that was both reflective of his past failings and the challenge that lies ahead for Rishi Sunak.
“I’m afraid we didn’t win the argument. You learn as you get older, or at least more experienced, that the facts are not persuasive unless you can build a story of what’s really happening to people’s lives and a narrative that explains what’s gone wrong.”
In an attempt to bring the economy under control post-2008, he “spent too much time trying to solve the financial crisis and organising the international community” than looking to the communities who needed a leader.
Sunak has for all intents and purposes been a war-time Chancellor. His very first budget, only days after his predecessor Sajid Javid quit in a huff, was already mired by pandemic measures, even before Covid-19 took a stranglehold grip on Britain. Every financial statement since then has been weighed down by enduring restrictions and the burden of trying to right size an economy brought to a standstill.
For Sunak, Brown’s warning should give him pause for thought ahead of a spending review we’ve been promised is not a “mini budget”.
He is rightly frightened of the spiralling debt we have taken on and the ongoing cost of servicing that. Our economic resilience is low. But it is not nothing, either.
On the table are proposals to cut fuel duty by 5p, a measure to help those most in need.
But as energy prices continue to swell, the Office for Budget Responsibility is expected to say inflation will peak close to 10 per cent, rather than the 5 per cent figure forecast last October.
Household incomes will be squeezed and real growth will be closer to 4 per cent instead of the 6.5 per cent shrink envisaged last year.
Sunak wants to balance the budget within three years. In October last year, there was £25bn to spare. Goldman Sachs expects this to be between £20bn and £50bn this time around.
But even with this extra cash, the Chancellor must be alive to the story he wants to tell.
The desire for fiscal responsibility is natural and respectable, especially if Sunak is to live up to his brand of being the one in Downing Street with a careful eye on the purse strings, but it must not come at the cost of people’s lives.
Cutting fuel duty, introducing new measures on top of the rebates on council tax and £200 energy loans will go some way to easing the immediate crisis, but if people continue to see a fall in their quality of life as a result of inflation on everyday products, faith in the Chancellor will run begin to run dry – if the drought hasn’t already begun.
Sunak has refused to go to the easiest option – scrapping or at least delaying the National Insurance hike. There is method to this, from a political perspective, even if it is madness from an economic one. The level of crisis in the NHS is deep, with GPs warning this week that a lack of resources in surgeries means more people are put at risk than just those on the ever-growing waitlists.
If people fail to see change in access to everyday healthcare, any narrative of being a “people’s Chancellor” will quickly turn to dust.
But something will have to give. Income tax brackets are still frozen, meaning the amount of tax people pay will also jump as wages are slowly but surely pushed up by inflation. When the freeze to income tax thresholds was announced in March last year, the Institute of Fiscal Studies estimated it would raise £8bn. Now, they expect this to be more like £21bn.
State benefits will also need to follow the trend of wages to allow people to make ends meet. Andrew Bailey, the governor of the Bank of England, had the unenviable task of telling people not to ask their employers for higher salaries in a bid to prevent a price-wage spiral. There is sense in this, no matter how cruel it sounds when put down in black and white, but consumer spending, even with higher wages, will likely be constricted in any case, with uncertainty forcing them to stash away more cash for a rainy day (or just a cold one to afford their energy bills).
Rishi Sunak wants to steady the ship, keep a tight grip on spending and keep himself in the eyes of the public and the Conservative party a man of financial prudence. But that will count for nought if people can’t see the story the Chancellor is trying to tell in the quality of their lives and the prices on the supermarket shelves and petrol pumps.