Simon French: Budgets are judged on honesty not gimmickry
Budgets are judged on honesty not gimmickry
Published: The Times 20/02/21
In just eleven days’ time the Chancellor, Rishi Sunak, gets to lay out the government’s vision for the post-COVID–19 UK economy. Mr Sunak, inevitably, will face the same duality that every previous Chancellor has grappled with. How do I address the pressing issues of the day, whilst also setting out my stall for the long-term challenges the nation faces? This year, the immediate economic decisions will be heavily influenced by the reopening timetable the Government will set out on Monday. It seems inevitable that policies such as furlough and business rate relief will see their sunset tied to these dates. The longer-term questions will only be addressed if the Chancellor allows himself – or is allowed by his next-door neighbour, the Prime Minister and First Lord of the Treasury – to be honest with the British public.
This distinction between short and long run priorities is particularly acute this year given the extraordinary economic and social turmoil of the last twelve months. Recovering from the biggest recession in living memory should not be constrained by temptations to balance the public finances. The cost in lives and livelihoods will be far higher if such an agenda prevails. British businesses and households should continue to be supported using the extraordinary flexibility of the public purse to get back on their feet. An essential aspect of this Budget will be a message that better days lie ahead – encouraging the private sector to hire, to invest and to spend. There should also be increased financial incentives to self-isolate should public health precautions necessitate it. It is very difficult to find a single credible economic voice that thinks now is a good time to do raise taxes or cut spending. There is incredulity in some circles that Treasury officials and the Chancellor may see things differently. Personally, I doubt they do.
The privilege of being able to ignore near-term financial gravity also comes with a responsibility assumed by the guardians of the public purse. A responsibility that it is has been far too easy for Chancellors and Finance Ministers around the world to ignore amidst decades of falling interest rates and growing populations. An ageing population, a steadily rising public debt and an erosion of the tax base leaves economies vulnerable. Vulnerable to rising interest rates, vulnerable to seeding inequality between different generations and vulnerable to wasting taxpayers hard–earned money during the good times. The Chancellor’s own independent watchdog, the Office for Budget Responsibility, has regularly warned him that the debts built up by COVID-19 will be a molehill in comparison to the mountain of debt that is forecast to accrue over the next few decades. The events of the last twelve months can, and should, be paid back steadily over many years – much as they were in the aftermath of the two World Wars. The longer-term costs of pensions, heath and social care spending that will fall due over the next half century require some rather tougher choices. This is where a Chancellor with a carefully curated Instagram account will be obliged, eventually, to introduce policies attracting rather fewer likes.
So what should the Chancellor make as key themes of a responsible Budget – one that bridges these short term and long term goals? Four areas spring to mind.
Firstly, a positive vision for the exit from COVID-19 restrictions. Employers considering whether to issue redundancy notices over the next few weeks need confidence that the Treasury’s support is not going to be withdrawn before the economy has regained its pre-COVID-19 lustre. The Treasury’s recent record has been rather mixed in this regard, following an excellent start. With the Bank of England expecting UK unemployment to pick-up to in excess of 7% later in the year, the Chancellor should make it clear that the tough decisions regarding the future of the UK’s public finances will only crystallise once unemployment falls back below 5%. This is similar to a tax and spending strategy recently adopted by the Australian government. There are a range of other sensible commitments – including protecting public sector investment – that can be declared. However, the advantage of tying tough decisions to the UK unemployment rate is the understanding this fosters beyond just economists and keen students of public sector accounting.
Secondly, the UK desperately needs a tax strategy to deal with the trio of threats of a steadily eroding tax base, a woefully targeted regime of property taxation and the increased dominance of the digital economy. A whole cottage industry of lobbying for protectionist taxes that stifle competition and innovation has been allowed to build up. Calls for an online sales tax fall squarely in this camp. What are this government’s principles of fair taxation? I have no idea. Effective taxation relies on a social licence rooted in perceived fairness. At the moment that licence is looking rather frayed round the edges.
Thirdly, there are no short cuts to growth. No golden bullets. No sunlit uplands without a long climb. The welcome commitment in the Industrial Strategy to improve the spending on Research and Development by 50% over the next decade will not yield quick results. Consulting with British business over smarter regulation outside the EU is, at best, going to generate a charring of red tape, rather than a bonfire. A Green Industrial Revolution and a more equal regional distribution of growth is only going to crowd-in private investment once it is seen as an irreversible agenda rather than an election soundbite. A great Budget provides boring continuity, not gimmicks.
Finally, and in keeping with recent recessions, the current UK recession has all the hallmarks of impacting the youngest, and most disadvantaged the most. Not simply financially, but also in their experiences, training and opportunities. A nakedly political Budget recognises this group votes with far less frequency. A compassionate Budget ignores this fact. A smart Budget remembers these are tomorrow’s voters.
Managing Director, Head of Research