Rishi Sunak could choose to be honest with voters — but he won’t
The writer chairs the FT’s appointments and oversight committee
‘If winter comes, can spring be far behind?’ asked Shelley. Chancellor Rishi Sunak must feel that the question is not merely rhetorical. What he has to say on Wednesday may be labelled the spring statement but he will struggle to give the country any hope that we are heading into sunny post-Covid uplands. The architect of “Eat Out to Help Out” may have succeeded in briefly cheering up the nation with discounted meals — albeit probably helping the virus to spread in the process — but the economy has been plunged from a pandemic to a war and he has little room for manoeuvre.
Yet the demands for increased spending continue to mount. The latest, understandably, is for defence; only the most ardent pacifist would now argue against the need to rebuild our armed forces. The NHS, if it is to deliver on its limitless promises, is insatiable and the extra cash promised for social care is instead destined to vanish into funding that behemoth. The infrastructure that is an essential component for the much vaunted levelling-up agenda will not come cheaply. Cries for help with increasing fuel costs have already reached screaming pitch. Meanwhile, the number of people who need financial help just to feed their families is growing.
Imagine that the chancellor decided to be frank about the impossibility of meeting all these demands. He could choose to be honest with the country and say that coping with Covid had pushed government borrowing to record levels; that, even though business recovery was pushing up tax receipts, rising interest rates meant accrued interest payments on government debt had hit new peaks. So sorry, but we will all have to suck up the pain of rising energy costs, soaring food prices and poorly funded public services — unless we want to pay more for them.
It seems that Sunak has been trying to convey this message to cabinet colleagues, but it is not what they want to hear — and it is certainly not what they want him to tell the electorate. He has been fighting against those who want him to increase last month’s measures to cushion a majority of the population against some of the whopping increase in energy prices, arguing that he wants to see where they settle in the autumn. He is also resisting demands to abandon the national insurance surcharge, even though it is due to kick in next month, just when workers will be feeling the impact of soaring inflation and higher rates.
But he will feel obliged to offer a few bonbons — beyond some upbeat comments on employment numbers — and we can expect him to make great play of the fact that borrowing is actually not quite as bad as had been forecast. And while current Conservative ideology abhors any suggestion of income tax rises, last year’s decision to freeze thresholds for four years, coupled with the inflation in wages, could yield the Treasury as much as an extra £12.5bn a year that Sunak might choose to redistribute.
The most effective way would probably be to increase the uplift in benefits due to take effect in April. This is pitched at just 3.1 per cent, a miserly figure compared with inflation now destined to hit at least 8 per cent this year. The Joseph Rowntree Foundation estimates that 9mn families will be at least £500 a year worse off as a result and that will equate to real pain.
Sunak could also acknowledge that not all pensioners are on the breadline. There is absolutely no reason why older people still in employment should not pay the full rate of national insurance. They will now have to pay the extra health levy but there can be no justification for excluding them from the totality. While scraping in some extra cash, Sunak should also change the taxation of private equity funds so what is actually income is no longer taxed as capital gains. The sums involved are small but the message is big: we really do want to be a fairer society. A pledge to improve government procurement would be welcome, particularly after the PPE fiasco.
We also need to be a more productive society. The CBI employers body and others are pushing hard for yet more tax breaks to encourage business to invest, and it is true that capital investment lags behind other developing countries as does our gross domestic product. Incentives, though, are not what truly holds back British productivity: poor management is the issue. That is what the commission headed by former John Lewis chair Sir Charlie Mayfield concluded and it was right.
The CBI is badgering Sunak for 100 per cent tax deduction for capital spending but, for many companies, sensible investment should not require huge tax incentives. It takes strong management to take brave decisions.
And it takes brave politicians to tell the hard truth: one way or another, tax rates are going to have to rise