The main economic doctrines of Thatcherism were roughly as follows. The state should be rolled back. Don’t spend more than you can afford. Seek to balance the Budget. Borrowing is deferred taxation. The private sector drives growth and government doesn’t: indeed, it tends to gets in the way.
Successive governments have been unapplying these ideas for some time – though the Coalition’s programme of deficit reduction was straight out of the Thatcher handbag, as was its decision to cut the top rate of income tax.
Theresa May Mark One, as we call the period when Nick Timothy and Fiona Hill ruled the roost, saw a deliberate public break from the Thatcher legacy. In her first Conservative Party conference speech, the former Prime Minister lauded “the good that Government can do”.
Timothy was sufficiently favoured by Team Johnson to be allowed a crack at two Parliamentary selections last year. Indeed, there is a sense in which Dominic Cummings is Timothy in disguise, with his enthusiasm for the state’s role in science policy, and his indifference to its size.
Rishi Sunak presented today’s Budget with verve, aplomb and some shrewdly-made judgements: for example, by seeking to pluck feathers from Entrepreneurs’ Relief without killing the goose. But our sense is that this was not a Budget drawn up by the Chancellor.
Rather, it was masterminded jointly in Downing Street, to which the top of the Treasury, in the form of Sunak, has been yoked – following the resignation of Sajid Javid. And it marks a wider and deeper Tory break from the Thatcher legacy, enshrined this time round in the main financial statement of a Government with a near-landslide majority.
David Cameron and George Osborne wanted to get state spending as a share of GDP down to 35 per cent. Boris Johnson and Sunak are settling for nearer 40 per cent. Not so long ago, the former Chancellor aimed to achieve a Budget surplus. Now, his successor looks to run a deficit of some two to three per cent of GDP.
Such are the consequences of what Sunak himself lauded as “the largest sustained fiscal boost for 30 years”. He was shy of spelling out what this implies for borrowing and tax. On the former, he avoided spelling out the figures other than in percentage terms. No wonder, since the actual sums give pause for thought.
It was £38 billion in 2018. The Office of Budget Responsibility says that the Chancellor plans it to hit £67 billion in 2021-22 before declining to £58 billion by the end of this Parliament. On tax rises, that implies a tax burden of about 35 per cent of GDP over the same period: the Institute for Fiscal Studies will doubtless have more details tomorrow.
Now Thatcherism was sometimes applied more in the breach than the observance – including by the former Prime Minister herself – and rules are there to be broken if circumstances so dictate. There is a case for believing that they do today.
We have solemnly quoted a series of Budget figures. But forecasts are almost never right at the best of times, and we may be set for the worst of them. The Chancellor said that the effect of the Coronavirus will be “temporary”, and strictly speaking he was doubtless correct.
But temporary is as temporary does, and Sunak knows no more or less than we do what the combination of the virus, downturn, market volatility, corporate debt, the condition of the banks, China’s debts, Italy’s condition, the Eurozone’s torpid handling of the crisis and America’s haphazard one will bring.
It could be that the coronavirus will require an even bigger bailout fund than the £30 billion package that the Chancellor announced today. And that the illness will stretch out the weird post-crash economic world, with its rock-bottom interest rates and persistent spectre of deflation, than would otherwise have been the case.
In such circumstances, the Government’s fiscal rules would matter less than Javid, who clearly sees himself as their guardian, is currently making out. In any event, such rules chop and change all the time, as this entertaining history by Harry Phibbs confirms, and are impossible to take too seriously.
So it could even be that Sunak’s exercise in Boosterism with a capital B won’t be enough to see the economy through what is surely set to be recession – if one accepts that the Government is as right to borrow more now as it would have wrong to borrow more in 2010, because the structural deficit has been brought under control.
But a central point here, at least for ConservativeHome, is not just what the Chancellor did today, but why he did it. And we confess to being resistant to the philosophy, if that’s quite the right word, that now drives that yoked Number Ten/Number Eleven team – and the Johnson instinct for Bridges and Circuses that helps to form it.
Sunak didn’t try to explain away his whopping planned increase in state spending yesterday. Instead, he embraced it as a point of pride. “An average growth rate in real terms of 2.8 per cent – twice as fast as the economy,” he told the Commons.
In this vision of things, government can drive growth – building infrastructure, with billions on broadband, rail and “strategic roads”; raised spending on public services, with even bigger NHS totals; more money for science, with £800 million going on Cummings’ Arpa-style project, and not so much greenery as to frighten the horses.
Much of all this is for the noble purpose of “levelling-up” – changing “the whole mindset of Government”, as the Chancellor put it yesterday. But one does not have to be an economic minimalist to point out that Britain has a long history of getting all this wrong, through Wilson’s white hot heat and Heath’s U-turned state to Brown’s debt.
If Government spending can drive growth, why is Jeremy Corbyn wrong? Why not vote for a Marxist Labour Party and have done with it? Johnson and Sunak have a plausible answer: because we’re not in hoc to a hateful ideology; are more pragmatic; more business-friendly; more sensible; better – at least as politicians.
ConservativeHome expected that the Budget would tackle the Coronavirus crisis head-on, and that the Chancellor would therefore announce that, for nearly everything else, tomorrow must be another day. We underestimated the ambition, sweep and ruthlessness of this Government.
It is light on the structural reform that must come with higher spending – one of the reasons why we distrust the approach that Sunak set out. There is no apparent intent to deal with social care, the pensions bill, NHS efficiency – the challenges posed by an ageing population. No Ken Clarke-style, Ken Baker-type public service overhaul.
But there is beyond doubt an intense political focus, a long memory for slights and disloyalty, a contempt for much of the media – and a revolutionary mindset.
“A People’s Budget from a People’s Government,” the Chancellor perorated. There you have it. Not a Thatcherite one from a Conservative one – or even a plan that is recognisably Tory at all, at least by the standard of recent years. The voice was the voice of Sunak, but the hands were those of Vote Leave.