“At least it’s sunny”. So read the Sun’s headline the day after Alistair Darling delivered his April 2009 budget. Following the financial crash, bank bailouts and rising unemployment were among the symptoms of the nation’s economic malaise. The figure that dominated the news was Government borrowing of £175 billion, or 12.4% of GDP. Amid the torrent of bad news the Met office had forecast a few days of good weather – hence the Sun’s headline.
That figure now seems tame compared with the Spending Review delivered today by the Chancellor, Rishi Sunak. Among the many figures referenced were Government borrowing of £394 billion, the largest fall in economic output for over 300 years and rising underlying debt levels. These and other eye-watering statistics laid bare the cost to the nation of COVID and the forecast is that borrowing will remain high – by 2024/25 it is forecast to be £100 billion.
With a vaccine-enabled exit from the crisis likely in the Spring we can see the light at the end of the tunnel. The Chancellor sought to set a narrative around the work that the Government will be doing to support the nation. He had three key themes:
Protecting lives and livelihoods: So far, the Government has spent £280 billion on helping the nation to get through COVID from the furlough scheme to additional funding for the NHS. This support will continue next year to the tune of £55 billion with the Chancellor referencing, by way of example, support to keep public transport running while passenger numbers are depressed, additional support to local authorities and tackling rough sleeping alongside additional help for the devolved administrations. He was keen to emphasise that the cost of inaction would have been much higher and said that the OBR, Bank of England and IMF have all stated that the Government’s response has protected jobs, supported incomes and helped businesses to stay afloat.
Delivering stronger public services: He listed many ways in which the Government would continue to invest in key public services. Highlights were an increase in the NHS core budget of £6.6 billion and £2.3 billion for NHS capital investment – helping to deliver the 40 new hospitals that were promised in the Conservatives’ General Election Manifesto. He also announced an extra £2.2 billion for the education budget.
Investment in infrastructure: Sunak set a distinctly Keynesian tone in this section of his statement. The Government will be investing £100 billion in infrastructure – the highest level for 40 years. This will include a £7.1 billion national home building fund, new roads, upgraded railways and zero emission buses. There will also be a new £4 billion ‘levelling-up’ fund, based in the North. All areas will be able to bid for money from this fund though there will be conditions: Projects must command local support and have the backing of the local MP.
How different things seem from the days of George Osborne and his austerity budgets. Sunak has responded to the COVID crisis by turning on the spending taps in the same way as many other Government around the world. The consensus is that it makes economic sense for Governments to support their economies but it makes political sense too. Austerity won’t cut it with many parts of the electorate – in particular the Conservatives’ new supporters in former ‘Red Wall’ seats.
This was a Spending Statement – not a budget. Now is not the time to announce cuts or tax rises but the Chancellor will, in the near future, need to spell out how he will repair the public finances – either through tax rises or spending cuts. He has had a good run so far and his popularity remains high – a restaurant on my local high street still has its ‘Rishi’s dishes’ poster up from the Summer’s ‘Eat out to help out’ campaign. How he plays the politics of the bad news – when he has to deliver it – will require all the skills and experience that he and his team can draw on. One former minister was reported to sum up the Chancellor’s challenge as follows: “I love Christmas, but I don’t like the Amex bill that arrives in January”.
Indications of his ability to manage the bad news came in the way he responded to calls to commit to raising spending on foreign aid to 0.7% of GDP and Labour calls for a broader public sector pay rise. He addressed both head on: For the time being the UK will spend 0.5% of GDP on foreign aid although this section of the statement was laced with warm words about the UK remaining open to the world. In making this decision he went against calls from five former prime ministers, Malala Yousafzai, the Archbishop of Canterbury and John Podesta, former adviser to Barak Obama with strong ties to the Biden Administration.
Nurses and other NHS professionals will receive a pay rise as will other public sector workers with incomes under £24,000; however, pay rises in the rest of the public sector will be paused in 2021. Sunak is said to be nervous about losing the Conservatives’ reputation for good financial management.
The Chancellor’s largesse puts Labour in a difficult position and the Party are left in a position where it can only call for the Government to spend even more. In this context the response from the Shadow Chancellor, Anneliese Dodds, made the best of a relatively weak position and could be broken down into the following themes:
Appeals to Labour’s core vote: She was very critical that many public sector key workers will not be getting a pay rise and invoked the commitment shown by NHS workers, teachers and care workers during the crisis so far.
Continuing to knock the Government on competence: She referenced several examples of mismanagement by the Government. This has been a regular feature of Sir Kier Starmer’s attacks at Prime Ministers’ Questions.
Cronyism: Her response included a claim that people with connections in the Government are ten times more likely to secure contracts.
Levelling down not levelling up: She was very critical of the levelling up fund, saying that it amounted to handing out support in a top-down manner, refencing previous instances of Conservative MPs nominating each other’s constituencies for infrastructure spending and said that Labour Mayors and councils were delivering for local people in the North.
So amidst the ongoing health and economic crises politics continues: Rishi Sunak wans to keep the Government on the front foot and protect ‘brand Rishi’ and Labour tries to rebuild relations with the voters it has lost.