Time is short as the chancellor tries to devise a coherent package for his budget on 3 March. Already it looks like being an impossible task.
In the same way as the Conservative party is at odds over how to tackle the pandemic, it also cannot decide on what direction to take when the vaccine – maybe by as early as the summer – begins to clear the economic fog.
To say that there are competing agendas would be to put this budget in the same category as all its predecessors. Rishi Sunak must wish that were the case. This one will be different because the pandemic, the climate emergency and Brexit mean the intensity of rival claims on Treasury funds will be more akin to the early 1980s and the internal battle between one-nation Tories and their free-market adversaries.
When he stands up in the Commons to deliver the first fully fledged non-emergency budget of this parliament, one of Sunak’s main messages will be that he wants to protect existing jobs through the pandemic and also give extra depth to state-funded programmes that create new ones.
An increase in unemployment to about 7%, predicted by the Office for Budget Responsibility in its latest outlook, is short of the 10-12% it forecast in the depths of the first lockdown. Yet that rise would still create up to 2.3 million officially unemployed workers, and many more uncounted jobless.
While state funding is expanded, free-market supporters who argue that job creation should be left to the private sector must be placated. They will receive promises of contracts to private-sector companies. Tax cuts for startup businesses and investment incentives are also likely to be offered to keep a powerful body of cabinet ministers – Michael Gove, Liz Truss and Kwasi Kwarteng among them – from rebelling.
A green tech revolution is promised, one that puts the UK at the forefront of tackling the climate emergency before the Cop26 climate summit in Glasgow later this year.
Meanwhile, Sunak will devote huge sums to the pet projects of backbench Tory MPs who obsess about road-widening schemes and lobby for the infrastructure needed to build homes on flood plains.
The NHS, schools and the police are already in line to receive more cash following last year’s public spending review. But those who favour limits on local authority spending will cheer the return of austerity in every other area of council activity.
And free-market cabinet ministers and their backbench supporters don’t mind adhering to the sacred promises of free education and healthcare at the point of use, if the state funding for them can be hoovered up by privately run service providers. That too will continue.
Can Sunak afford to appease both camps when the debate turns to other subjects, such as “levelling up” the north, supporting the economies of devolved nations and helping exporters hit by a chaotic Brexit? Not when he claims the budget will also be mindful of the UK’s growing debts.
We won’t know until budget day how low Sunak’s debt ceiling will be and, as a consequence, how much room he will leave himself over the next four years for spending.
It seems he will ignore the recommendations of the International Monetary Fund and the OECD, which have made it clear they believe those countries that can expand their borrowing should do so, to lift not only their own economies, but the economies of those around them. These organisations say with confidence that interest rates will stay low for several years and so will inflation – and that even if they don’t, the UK has a central bank that can step in to make up the difference.
If the Treasury limits its financial room for manoeuvre and insists on pleasing all sides, its spending will be both incoherent and lack the necessary power to reform any aspect of the UK economy. An opportunity to persuade the public that a break with the past is needed will have been lost. Once again, the government’s rhetoric will sound disconnected from policies that resemble a collection of peashooters where bazookas are required.
Boris Johnson is an inveterate crowd-pleaser. This year we have seen that Sunak too looks like he is trapped by the desire to satisfy both wings of his party, even if he leans towards toward the free-marketers and their small-state agenda.
The chancellor may think arbitrary borrowing limits put the public finances in a stronger position and, with them, his chances of succeeding Johnson one day.
They don’t. They just undermine household and business confidence, and limit the recovery.
