As Rishi Sunak’s campaign to become prime minister moves nearer what his supporters must fear will be an unsatisfactory conclusion, one wonders how he reflects upon his record as chancellor, and how that record fits – or does not fit – with the rhetoric of a would-be leader. Pushed on to the back foot, he has delivered an economic message with internal conflicts – contradicting things said earlier in his campaign, and much he did when Chancellor. Luckily for her, his rival was not so complicit in the design of the economic distress in which Britain now lingers.
Mr Sunak conducted his time as Second Lord of the Treasury unaware of the fundamental flaw, in the eyes of most Conservatives, of pursuing policies that push taxes up rather than seeking serious savings in a total estimated public spend in this financial year of £1,087bn. This is £60bn up on the estimates for last year, and compares with an out-turn of £883.9bn in 2019-20, the last year before the pandemic. Covid is still present but the worst is over: lockdowns and furloughs are past. Unemployment is at 3.6% and forecast to fall further. The Government estimates that because Covid is under control £39.2bn less will be spent in the NHS this year. Never, one might have thought, had there been such propitious and necessary a time to cut every penny we can out of public spending.
But the Sunak way has been to raise taxation: his National Insurance increase, for example, and his plan to raise Corporation Tax from 19 per cent to 25 per cent, which can only harm businesses and employment, and encourage bigger firms to locate elsewhere. His economic stewardship has left us with the highest tax burden since Clement Attlee was prime minister – and Attlee, who had nationalised everything in sight, was conducting an authentic socialist project such as Mr Sunak claims to abominate, and that Conservative voters reject and deplore. So on the campaign trail, promising eventual tax cuts, does he grasp the paradox apparent to many that taxes are so high because he increased them?
The economic history of the pandemic remains to be written. The much-promised but still-invisible public enquiry, now urgent for all sorts of reasons, will provide much of the essential source material. Mr Sunak was, at Covid’s height, the smiling face of public largesse, shelling out cash on schemes to keep restaurants afloat and paying people to sit at home and do nothing. Maybe one day we shall learn to what degree that policy was his responsibility, and how much the outgoing Prime Minister’s. Maybe we shall, after the inquiry, realise how much of that epic additional spend of taxpayer’s money – around £300bn – was necessary. Maybe we shall learn, too, how well or otherwise the Treasury oversaw the spending of all that money, pursued those who sought to defraud the Government and the taxpayer, and who allowed huge amounts to be paid to ministers’ cronies for useless protective equipment. Until the data are available we can only conclude that Mr Sunak did a pretty poor job; and shouldn’t ask his party, and at the next general election the country, to give him an even bigger one.
His record, and the cost of living crisis and record tax burden he helped create (and, to be fair, that his rival supported under collective responsibility) sit ill with pledges he now makes. He promises a 16p basic rate of income tax by 2029 compared with 20p now. That, he says, will be paid for by growth: but what growth? The OECD can’t foresee any. What is his plan for growth? Indeed, why didn’t he have such a plan when he was Chancellor? Why did he refuse to scrap VAT on energy bills for a year then, yet promise to do it now? Russia’s war on Ukraine, which has inflamed energy prices, is not his fault, any more than the pandemic was. But he does seem to have had an unsatisfactory way of dealing with both, which hardly polishes his premiership credentials. Confronted with finding money to tackle problems, increasing or maintaining the tax burden has been Mr Sunak’s policy of choice, rather than cutting spending elsewhere.
He argues that he refuses to offer quick tax cuts that he can’t fund, because they would be inflationary. Well, they would be inflationary if they increased the supply of money; without a growth plan, and if he refuses to cut spending, he can fund his tax cut only by borrowing money. History relates that that would cause inflation. This brings us to the danger in his opponent’s taxation plans. Ms Truss wants immediate tax cuts, recognising that a true Conservative government must do that to honour its contract with its voters and the country. In the short term she admits she will have to borrow to do this, which has invited an avalanche of criticism precisely because of the inflationary risks of such a policy. Lord Lawson has intimated that Mrs Thatcher would never have done this and, indeed, history bears him out.
Ms Truss wants to scrap the Corporation Tax rise, reverse the NI increase, review inheritance tax and remove for two years the green levy from energy bills. This is all instinctively appealing to Tories: but only if properly funded. That means cutting public spending, which means cutting the public payroll, or welfare spending, something she is loath to admit.
The hard choices her admirable intentions entail require an iron Chancellor. That is why a substantial group of her parliamentary supporters are asking her to give Sir John Redwood the job. Sir John is the cleverest man in the Commons. His blog is a fount of economic wisdom and Ms Truss appears to have imbibed it. However, his intellect and austere manner terrify lesser beings – which is why his career has been largely on the back benches.
We have had too many mediocrities in cabinet. Mr Sunak is wrong to suggest that taxes must stay high for a while. If cuts can be funded there is no reason to leave them at their present damaging level. But if Ms Truss is to prove him wrong, she will need a chancellor of vision, ruthlessness and steel-like toughness.