The Budget is primarily a political event, not an economic one, and has always been so. It isn’t clear during what year in the eighteenth century the first one was delivered. But the origins of the annual statement lie in the belief that the Treasury must approve tax and spending proposals before they are put to the Commons.
In economic terms, this isn’t necessary, strictly speaking – and certainly doesn’t require such plans to be shoehorned into a single presentation. To this day, there is a school of thought which views the Budget as a preposterous piece of Parliamentary pantomime, which should be scrapped.
Whether or not one agrees, this is certainly a year for the Chancellor to deliver a clear political message. 2021 will mark the first year since Brexit in fact rather simply than in law, since 2020 marked the end of the transition period. We can also be reasonably sure that the country is emerging from Covid-19, but that life after the pandemic may not be the same as before.
Workers could commute less; the move from cities and suburbs to towns and country may continue, with knock-on effects on the price of offices and homes; on roads and railways; on shops and jobs: resilence may require some of the last to return; a shift to Zoom and Teams could force some lower-skill ones to go. Universities may want to keep more teaching online. There will be a formidable NHS backlog.
Rishi Sunak could be deceiving to flatter over his Budget this week, if that’s quite the right way of describing threatening unpleasant medicine rather than delivering it. Today’s news suggests that the Office for Budget Responsibility believes that Britain’s vaccine progress will spur economic growth sufficient to reduce its central forecast for debt and deficit.
We also suspect that most tax rises in the Budget will be staggered over time rather than implemented at once – which leaves wiggle room for them never being effected at all. Nevertheless, there is a danger of Sunak, artful communicator that he is, failing to deliver a convincing political message at all on Wednesday, let alone one that sets the tone for post-Brexit, post-Covid Britain.
It is possible as matters stand, even likely, that his Budget disintegrates into a nasty inter-Tory row about tax and spending, with the Chancellor under pressure from Conservative MPs over high streets, and from the broad centre-right movement over corporation tax. The Taxpayers’ Alliance is already at it, citing “one thousand Tory tax rises in ten years”.
On that point and in passing, we agree with Robert Colvile of the Centre for Policy Studies that Conservative backbenchers are more likely to bridle over spending cuts (or rather reductions in the rate of spending growth) than tax rises. So Sunak’s position, like that of most Chancellors, isn’t straightforward, for that reason and for others.
The Treasury nightmare is that growth doesn’t come, Tory backbenchers won’t stomach those spending cuts, and that taxes have to rise during the run-up to an election – even if the demise of the Fixed Terms Parliament Act gives Boris Johnson more flexibility over when a poll can be called.
The Chancellor will be fretting about a post-Covid surge in demand-pull inflation. And the Treasury has clearly been preparing the ground for some tax rises now by pointing to “recent financial market turmoil, which has seen ten-year UK government borrowing costs rise half a percentage point over the past month”.
ConHome suspects that there is more art than substance in this gloomy briefing. The most convincing explanation for that increase is not that the markets are spooked by Government borrowing, but that they are expecting a vigorous recovery (which this morning’s OBR news will do nothing to discourage).
The best means of ensuring that those tax revenues flow in is surely to help ensure that the recovery is sustainable – which in turn means not raising taxes now. This site remains where we were before. In these unusual times, the better course is to let the deficit grow big enough to look after itself and, if the growth fails to come, persuade those Tory MPs that spending control is integral to their re-election.
We recognise that this course is risky, but Britain cannot tax its way to prosperity. And whatever else may be said about tax rises and the Budget, sweeping them off the stage would allow Sunak room to step forward to its front – and deliver his message about that post-Covid and post-Brexit future, like some Shakespearian Chorus reciting the prologue.
Because of the modern habit of briefing bits of the Budget in advance, we have a good sense of what parts of this will be. We are sceptical about whether the drive to eliminate carbon emissions by 2050 is sustainable. But the Chancellor is set to offer a green savings bond to retail investors. He will do no less with COP26 looming later this year.
On Covid, he will keep the furlough scheme, bounce-back loans, targeted VAT cuts and stamp duty reductions going until June at least. And there will be more help for hospitality and retail. We would be astonished if there is nothing in the Budget for high streets, perhaps on business rates, and surprised if there isn’t a package on mental health.
Tax reform is easier done in circumstances such as those of 1988, when Nigel Lawson was able to simplify the tax system while the public finances showed a surplus, than amidst what is still a pandemic. But if Sunak has longer-term plans to shift the balance of tax from income to consumption, including high-end property, and reform pension taxes rather than tinker with them, he should signal them.
Above all, the Chancellor will want to signal intent on bolstering the Union and delivering levelling-up. The signs are promising. The briefing suggests that he is poised to do both at once – by extending the levelling-up fund to the whole of the UK to help boost growth in Scotland, Wales and Northern Ireland.
Salmond-v-Sturgeon is lengthening the queue of devo-sceptics who bewail Labour’s setting-up of a Scottish Parliament. Nonetheless, the weaknesses of the devolution settlement will be addressed less by Westminster grabbing powers from above by it enabling councils to selze them from below.
Sunak and Boris Johnson should be pondering Douglas Ross’s call for Scottish councils to have the power to set business rates-free zones, rebuild local railways and deliver universal broadband. Meanwhile, the biggest test of delivering levelling-up is likely to be getting industrial strategy right.
The big decision isn’t about whether to intervene; it’s about how to – in this case, by acting on David Davis’ exam question, or rather statement, on this site: “As a nation we have done more to generate wealth in Silicon Valley with our ideas than we have in our own regions. We have been terrific at pure research, and useless at translational research”.
As Chancellor, George Osborne was sometimes portrayed as a submarine – surfacing only for the Budget. But what held for the Coalition’s strategist also holds for all chancellors: we don’t see much of them outside the Budget and the Autumn Statement. There is a sense of withdrawal from Sunak since his push for opening-up the economy was derailed by rising case, hospitalisation and death numbers.
He hasn’t even been dispatched to Scotland, as far as we know, where polling recently found him more popular with swing voters “than Keir Starmer, Gordon Brown, Alex Ferguson, and even the Queen”. But this Budget will test more than his appeal. It will probe whether or or not he can prepare the country for after Brexit, after Covid – and perhaps succeed Boris Johnson himself, “one fine day”.