Page 48 of the Conservative Manifesto promises to “get rid of the Fixed Term Parliaments Act – it has led to paralysis at a time the country needed decisive action”.
We will lay a modest bet that this pledge doesn’t appear in this year’s 102-page Red Book (plus supporting documents). But it may say more about Rishi Sunak’s Budget than anything that appears in any of them.
The abolition of the Act will give Boris Johnson the freedom to seek an election before Thursday May 2 2024. He may not find himself in a position to obtain one, nor necessarily seek it, but the possibility makes political sense of today’s set-piece.
For the first law of Budgets is that measures are one thing but forecasts quite another. And we include in that last category tax cuts or rises that are promised, but not yet implemented.
The central feature of Sunak’s presentation was pleasure now and pain later – if that is quite the right way of describing Britain’s condition today, and as it emerges, God willing, from the pandemic.
Broadly speaking, there is to be £65 billion pounds worth of spending soon, to help fatten the economy up, and £28 billion pounds worth of tax rises later, to slim it down again.
This is in the context of an Office for Budget Responsibility forecast of the following annual growth rates: four per cent this year, 7.3 per cent in 2022 (yes, you read that correctly), and then 1.7 per cent, 1.6 per cent and 1.7 per cent in the last three years of the forecast.
What’s the betting that, by the time of the 2023 Budget, this year’s growth has come in higher than four per cent, and next year’s higher than 7.3 per cent?
In that event, the Chancellor will be in a position to pluck one of those magical Budget rabbits out of his Treasury hat – and announce triumphantly that the higher growth has brought in higher tax revenues and so, bingo!
The Corporation Tax hike to 25 per cent, due to happen that year, will no longer be needed. The freezing of income tax allowances will go the same way. And Sunak will be able to have another look at the other thresholds, allowances and exempt amounts he is also freezing.
Indeed, the Chancellor would have the beguiling choice in these circumstances of whether to spend the extra revenue on public services and to return it to the people in tax cuts.
And then – kebang! Boris Johnson scuttles off to the Palace to seek a dissolution, and flat-footed Keir Starmer finds himself ambushed by the Roaring Twenties, with the Prime Minister in place as a kind of exhuberant Calvin Coolidge, if such a person is imaginable.
Now you will be thinking that Sunak would be stark staring bonkers to rely on growth doing any such thing. Interest rates and inflation “may not stay low for ever”, as the Chancellor put it in his speech.
Were they to nudge up significantly at the wrong moment, Sunak would have to cut the rate of growth of public spending. Except he wouldn’t, as it happens – at least, not if this Budget is anything to go by.
For that £28 billion pounds worth of proposed tax rises is the sum of the proposed consolidation, pretty much. The Chancellor was explicit in dismissing an alternative of trying “to find all the savings we need from public spending”.
Never mind finding all; he’s scarcely finding any – if today’s announcements are anything to go by. So in the event of an interest rate hike, or growth coming slower rather than faster than the OBR expects, the logic of Sunak’s statement today suggests…more tax hikes.
By way of background, the Chancellor was confronted today by known unknowns, and unknown ones too, on a scale greater even than some of his recent predecessors.
And whether because his inclinations now lean that way, or because the Prime Minister’s do, or the Conservatives are truly becoming a less financially orthodox, liberal party, Sunak appears to be closing off one of his escape routes in the event of a crisis.
However, he kept the others as open as he could – and, in that sense, the Budget was a persuasively-delivered political exercise, with a core message to it.
This was not about preparing for life post-Covid; nor for new opportunities after Brexit (minimally stressed in his statement); nor about preserving the Union, green growth, and levelling-up.
All of those elements were indeed present – as we hoped they would be – but they were not at the heart of what the Chancellor wanted to say or the picture he was painting.
That gave us, rather “Honest Rishi” – pointing forward not to the sunlit uplands but to the plain road ahead, and seeking to prepare his audience for those pre-briefed tax rises when, or perhaps if, they happen.
Such a sober message can be as remorselessly political as any spangled one, and it is significant that the vaguest part of Sunak’s three-pronged plan was the last – laying foundations for the future.
He would say otherwise, pointing to the simultaneous publication of Build Back Better; a socking great report of some 108 pages issued at the same time as yesterday’s Budget documents.
ConHome hasn’t had the pleasure of reading it yet in full – indeed, we’ve no more than skimmed it – but, with chapters on Levelling Up, Net Zero and Global Britain, we bet that parts of it least are a masterly summary of measures already announced.
What was missing from the Budget was also missing from the Manifesto, so we don’t claim for a moment that its absence came as a surprise – namely, any substantial plan for the reform of public services (with the exception of the civil service and the courts).
This poses another potential problem for the Chancellor. What if the NHS, and other parts of the public sector, continue to swallow up money – more, in this case, than Sunak has budgeted for.
If that happens, then those income tax, corporation tax and other tax rises are more likely to happen than not. But even if the Chancellor and the Prime Minister get their growth, postpone the hikes, obtain an election and win it, the outlook is likely to be unsettled.
For those post-2023 growth forecasts are anaemic – and, as Robert Colvile of the Centre for Policy Studies never tires of pointing out, Britain has only grown at pre-crash rates in one year, 2014, since the global financial crisis began to take off in 2007.
So any champagne bath snap election win in 2023 would likely be followed by a pounding hangover, if the OBR’s forecast is anywhere on the money. The self-limiting hand that Sunak played so artfully today may be dealt to him again later.