He didn’t look or sound like a man who had only been chancellor for a matter of weeks. It would have been a difficult debut outing in good times, but delivering an emergency Budget — just hours after an emergency rate cut — would test the mettle of a seasoned parliamentary grandee.
The delivery was calm and composed, the substance was nothing short of dramatic and even the jokes were good. Rishi Sunak, the 39 year-old former Goldman Sachs banker, described shadow chancellor John McDonnell’s new work on the economy as a “little-read book.”
There wasn’t much humour beyond this barb, as Sunak went on to deliver a Budget designed to provide immediate practical support to an economy facing virus-infested headwinds before pivoting with ease to a new fiscal doctrine that drove a coach and horses through government borrowing plans published just a year ago by Philip Hammond.
For a statement that committed the UK state to swallow up nearly 41 per cent of GDP it was met with roars of approval by the newly swelled ranks of Tory MPs. It was a shock and awe budget: the few remaining deficit hawks were shocked and Labour MPs were in awe.
Some commentators have suggested that this was a Budget McDonnell could have delivered. They are wrong, but it could certainly have been written by New Labour. Leaving aside the coronavirus measures, what Sunak unveiled amounts to the biggest Budget (in terms of spending increases) since 1992.
It may have been Hammond who declared that “austerity is over” but it was Sunak who proved it yesterday. Borrowing is back, this year and in the years ahead — surging past levels previously deemed sensible by a Tory government.
The reason is simple: Boris Johnson’s government doesn’t fear the deficit in the way that his predecessors did. Indeed, it is thanks to his predecessors that his chancellor was able to fling cash around yesterday like an oligarch in Harrods. When David Cameron and George Osborne came into office the deficit was a daunting 10 per cent. With that now down to nearer two per cent, with debt having fallen and with a “lower for longer” interest rate environment, Johnson’s government feels (with some justification) that it has much more room to play with.
Another reason for the dramatic forecast in borrowing is that the chancellor shunned tax rises in yesterday’s Budget. With the exception of some tinkering with duties and reliefs, Sunak has chosen to fund — among
other things — a promised infrastructure revolution through borrowing.
It marks a dramatic departure from the past decade and aligns with the government’s political priorities of investing, building and parking a few tanks on Labour’s lawn. Such an approach is, however, riddled with risk — and nowhere was this made clearer than in the latest growth projections.
The economy did not grow at all in the three months to January and the Office for Budget Responsibility (OBR) said yesterday it had forecast a pretty pathetic 1.1 per cent growth this year — but this doesn’t take into account the impact of coronavirus.
The other danger for the government is a rise in borrowing costs. As Sir Charlie Bean, a member of the OBR’s Budget responsibility committee, said last night: “Clearly the more debt you build up, the more exposed you are if things go wrong.”
Still, to govern is to choose. The choices made yesterday have received a warm welcome from business groups, economists and (generally speaking) the City. But without a return to proper economic growth in the years ahead, Sunak’s gamble could backfire.
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