Rishi Sunak’s sleight of hand aims to shift blame
for hardship ahead
Analysis: Chancellor trying to distance deliberate
political choices from declining living standards
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Heather
Stewart Political editor
Wed 23 Mar
2022 18.34 GMT
Rishi
Sunak’s spring statement opened by summoning the power of free societies and
open markets, as a counterpoint to Russian aggression in Ukraine. “What the
authoritarian mind perceives as division, we know are the passionate
disagreements at the heart of our living, breathing democracy,” he said.
It was a
Thatcherite rhetorical flourish aimed at stirring his supporters on the
Conservative backbenches, but also framed the statement as a response to the
war, which Sunak said had made the UK’s economy more fragile and underlined the
need for “security” at home.
The Office
for Budget Responsibility (OBR) is now forecasting the steepest one-year
decline in living standards since records began in the 1950s. So perhaps it
should not be surprising that Sunak appeared keen to paint the hardship ahead
as a contribution to the war effort rather than the result of deliberate
political choices.
He didn’t
quite say the privations to be faced by the British public over the next 12
months were a price worth paying (Kwasi Kwarteng almost went there last week,
saying the public were prepared for “sacrifices”). But he was sending a clear
signal to voters that when they open up next month’s energy bill, or wince as
they get to the supermarket till and see how much their shopping costs, they
should put the blame on an international crisis, not on the government.
Labour
believes that won’t wash with a public who were already feeling the impact of
rocketing inflation – and Conservative policies, including the cut to universal
credit – even before the tanks rolled across the Ukrainian border.
There was
another political sleight of hand at the heart of Sunak’s statement, too. With
great fanfare, he highlighted the announcement that the threshold for national
insurance contributions (NICs) would rise by a chunky £3,000 next month, and
income tax would be cut by 1p in 2024, calling it “the biggest net cut to
personal taxes in over a quarter of a century”.
He was not
willing to let his ambition to cut the basic rate of income tax “wither and
drift”, he said, and while he couldn’t justify it this year, he would press
ahead with it in two years’ time.
The
increase in the NICs threshold was welcomed by experts such as the Institute
for Fiscal Studies’ Paul Johnson as a sensible simplification, as well as a tax
cut, bringing national insurance in line with income tax.
Yet, as the
OBR pointed out, these much-vaunted tax cuts only reverse one-sixth of the tax
increases the Johnson government has announced.
This has
been a pattern with Sunak: his NICs cut helps soften the blow of a measure he
brought in himself in the autumn – the health and social care levy – just as
the cut in the universal credit taper rate he introduced in the budget partly offset
the reversal of the £20-a-week Covid uplift he had pushed through.
He is
evidently banking on a pat on the back from voters at the next general election
for cutting their taxes, even when he has, in fact, increased them.
The shadow
chancellor, Rachel Reeves, tried to capture the absurdity of this position with
an extended Alice in Wonderland metaphor; the Liberal Democrats’ leader, Ed
Davey, called it the “Sunak swindle”. But Tory backbenchers were overjoyed.
And of
course, those backbenchers will form the electorate for the first round of any
leadership contest that might take place in the not-too-distant future.
Sunak
insisted on the NICs increase as a quid pro quo for funding the prime
minister’s plan to cap social care costs, but it was loathed by many of his
colleagues and further dented his credentials as a Thatcherite small-state tax
cutter.
The
Treasury’s new tax plan, announced alongside the statement, says that from now
on tax cuts, not more public spending, will be the first priority – and
tackling the deficit is back in vogue. George Osborne hailed it as putting
“Tory economics back on track”.
It remains
to be seen how well the plan sits with Sunak’s neighbour in No 10, who loathed
the very idea of austerity, loves grands projects and tends to want to reach
for the spending taps.
And it is
unclear, too, whether voters promised “levelling up” – only mentioned once by
Sunak, in passing – will hail the government for handing them a tax cut after
two years that, judging by the OBR’s forecasts, look very grim indeed.
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