On Wednesday, 39-year old rookie Chancellor Rishi Sunak stood outside Number 11 holding the Treasury’s famous red case aloft. And despite becoming Britain’s second youngest chancellor only three weeks before, he unveiled an ambitious spending programme to ‘level-up’ Britain, while simultaneously warding off the economic effects of coronavirus. These twin objectives spurred Sunak to spend more than any other budget this century.
This is how Sunak’s maiden budget will shape the political landscape:
- This is the biggest budget expenditure since 1992, and it’s unlikely to be a one-off post-election giveaway. The government’s intention is to spark an extended period of productivity that repays borrowing and starts a post-Brexit boom. But with the full effects of Coronavirus and a hostile trading environment yet to be felt, spending will need to be replicated in November’s budget and beyond.
- The government has created a £12 billion Coronavirus fund. The NHS and social care services will receive £5 billion to tackle the virus; universal credit will now cover self-employed workers struck down by illness; business rates have been scrapped for twelve months and local authorities will be handed £2.2 billion to support local businesses.
- Climate activists are generally underwhelmed. The government shelved plans to end a nine year freeze on fuel duty and committed huge funds to smart motorways and road improvements. However, the budget wasn’t without climate friendly measures – £1bn was allocated to R&D for renewable energy.
- There is little for the Labour Party to attack in this budget. After all, a party led by self-proclaimed socialists cannot credibly criticise a government committed to public sector spending. The next leader, who will be announced in April, will need to quickly identify where this government could be vulnerable.
- An underreported, but certainly notable measure, is the Government’s plan to press ahead with a digital tax. The likes of Facebook, Google, Apple, Amazon and Netflix are facing a 2% charge on revenues made online in the UK. The government thinks these companies have failed to pay their fair share, in what will be welcome news for struggling high street retailers.
The Conservative Party
Sunak’s first budget has more in common with Gordon Brown’s approach to fiscal policy making than his own party predecessors: George Osborne and Phillip Hammond. Because of this, commentators have proclaimed the birth of a new Conservative Party – but this isn’t entirely correct.
After all, when facing electoral defeat in 1992, John Major’s pre-election budget committed to huge tax giveaways and public spending – ultimately securing a fourth consecutive parliamentary majority. The foreign secretary who served in that government, Malcom Rifkind, later explained how the Conservatives “sole purpose through the centuries has been to win and retain political power”. Boris Johnson and Rishi Sunak have tapped into this pragmatic trait – their first budget is attuned to public appetite for greater government spending.
Number Ten enjoys considerable power, support, and influence in parliament. But reaction to the budget did highlight some discontent within Tory party ranks. Theresa May and Sajid Javid stressed the need for more fiscal discipline, and argued that without a rise in tax, current spending commitments would be unsustainable. There is a lot of red ink in the government’s future projections.
May’s appeal to fiscal prudence in her Common’s speech only served as a stark reminder for why she misjudged public attitudes in 2017. Recent polling has confirmed that fiscal conservatism no longer resonates with most voting demographics. MP’s wedded to this type of ideology will remain in the backbench shadows for the foreseeable future – but they could prove to be a powerful, dormant force if the government’s gamble on productivity fails to pay dividends.
The post-budget political landscape is one where both major parties are committed to more day-to-day public spending. Labour can no longer self-identify as the anti-austerity party, so where do they go from here?
In contrast to the Conservatives, Labour leaders (not named Tony Blair) rarely play pragmatic politics. But the next party leader will need to at least show some policy discipline and identify weaknesses in the government’s agenda. A sensible place to start would be with those expressing grievances – largely climate activists and the social care industry.
Climate activists have criticised the budget for failing to deliver on promises to be the “greenest ever”. Their frustration is largely due to measures they view as incentivising motorists – £2.5 billion for pothole repairs, £27 billion for general road improvements and another freeze on fuel duty.
The government was always unlikely to end the nine-year fuel duty freeze because it disproportionately impacts voters in the North. Number Ten are aware that the 2019 General Election was a transactional one – voters have trusted Boris Johnson to get more than just Brexit done. Common sense practicality supersedes hard-line environmental measures.
Yet the government have set themselves ambitious climate targets that could prove to be banana skins. By hosting the COP26 climate conference in November, efforts to meet the targets will be under severe scrutiny. This is an area where Labour are well-placed to attack. They are a party that function on having an ideological cause and the “Green New Deal” could feasibly replace the socialism of the Corbyn era. This is a promising area for the Labour Party, yet the next leader will need to address how a greener policy agenda can win over voters the party have alienated in the Midlands and Northern England.
Meanwhile, due to the need for emergency Coronavirus funds, wider reform of the social care sector was shelved in this budget. In recent months Conservative commentators have even advocated Labour’s policy of free social care for over 65’s, highlighting how important this issue is to the general public (and the Conservative Party’s older electorate). Scrutiny of this sector will only increase as a result of the Coronavirus, and by promising to address concerns further down the line Sunak has provided plenty of time to Labour’s new leader to take ownership of the issue.
Future trading relationships
Rishi Sunak also announced that the government will be pressing ahead with a digital tax, meaning America’s tech giants will face a 2% charge on revenues generated in the UK.
This is a proposal that could have major consequences for Britain’s post-Brexit trading relationships. When it was raised at Davos by the former Chancellor Sajid Javid, his US counterpart threatened to impose huge tariffs on Britain’s car manufacturing industry. Along with the decision to press ahead with Huawei’s involvement in the UK’s 5G network, Number Ten are defying previous accusations levelled by Labour that the UK is cosying up to the Trump administration.
While a major row could erupt with the US, the digital tax will resonate with the EU, as countries like France are set to introduce a 3% levy. Could this be a cause that strengthens the post-Brexit relationship?
David Cameron ushered in the 2010’s with a “live within our means” mantra that ultimately defined a decade of fiscal prudence. Rishi Sunak has started the 2020’s with a “getting it done” budget, delivering on the rhetoric of the past eight months. Whether it comes to define a decade of productivity fuelled by massive day-to-day public spending remains to be seen. But despite having a major public health pandemic to contend with, Number Ten and Eleven have refused to blink.