Sunak tells Tory MPs in future he wants to prioritise cutting taxes
As my colleague Jessica Elgot reports, having delivered a budget at lunchtime that included not-insignificant increases in spending (at least on what was planned - see 5.37pm and 5.48pm), Rishi Sunak gave the impression when he spoke to the Conservative 1922 Committee this evening that, at heart, he would like to be prioritising tax cuts.
Sunak unequivocal on future tax cuts and not more spending when addressing 1922 committee tonight. Says budget “set a clear and unambiguous intent to begin the process of reducing taxes. Starting today with those who should rightly be our priority… the lowest paid.”
Sunak tells Tory MPs “I wont mince words with you… it is my view that going forward every marginal pound we have should be put into lowering people’s taxes, not more spending”
Sunak has gone 'from pay freeze to pay squeeze', says TUC
One union leader has attacked the budget as a “confidence trick”, while business groups were also less than enthusiastic about the chancellor’s announcements, PA Media reports. PA says:
Mick Whelan, general secretary of the train drivers’ union Aslef, said: “It’s a confidence trick, because it’s not new money - or even a new announcement - it’s just a rehash of money that has already been promised, and already allocated, dressed up to make the vhancellor look good. On the eve of Cop26, cuts to air passenger duty send out all the wrong signals.”
Kitty Ussher, chief economist at the Institute of Directors, said the crucial test was whether the budget gave business the confidence to invest, adding: “The chancellor’s business rates and R&D tax credit reforms are welcome, but with hefty hikes in other taxation on the horizon that may not be enough to convince business leaders to press go on their plans for growth.”
Tony Danker, CBI director general, said: “The chancellor has shown a genuine willingness to listen to business with measures that will get firms innovating and help the economy to grow. It takes several positive steps forward, but isn’t bold enough to deliver the high investment, high productivity economy the government seeks.
Shevaun Haviland, director general of the British Chambers of Commerce, said: “The chancellor has listened to Chambers’ long-standing calls for changes to the business rates system and this will be good news for many firms. It will provide much-needed relief for businesses across the country, giving many firms renewed confidence to invest and grow.”
TUC general secretary Frances O’Grady said: “The chancellor has gone from pay freeze to pay squeeze. Millions of key workers who saw us through the pandemic will still be worse off than they were in 2010. That puts vital services under pressure as even more staff leave, and it risks the recovery. He should have announced fair pay deals for whole industries, negotiated with unions, designed to get pay and productivity rising in every sector.”
And Unite general secretary Sharon Graham said: “The chancellor’s statement makes it clear that the government wants workers to pay for the pandemic. Their incomes are under attack from tax rises and inflation while the super-rich will continue to prosper. That is not acceptable.”
Brexit likely to be twice as damaging to economy as Covid, says OBR
Richard Hughes, chair of the OBR, also told the PM programme that the OBR now thinks Brexit will be twice as damaging to the economy as Covid. He explained:
In the long run, it’s about twice the effect of the pandemic. Our previous forecasts factored in a 4% loss of output from Brexit. We’ve now revised down our assessment of the pandemic to 2%. And so far the data we’ve seen on trade flows between ourselves and the EU broadly support that judgement that we are losing about 4% of GDP along the way, just based on that relationship between trade intensity and output.
City analysts: Sunak building a pre-election warchest?
Today’s spending review outlined £150bn of additional departmental spending over this parliament, which Rishi Sunak told MPs was “the largest increase this century”.
But despite that, some economists are suggesting that the chancellor could also be assembling a war chest to be spent before the next general election (which must take place by 2024).
That could ease the tax burden, which the OBR sees heading to the highest since the early 1950s (see 2.10pm).
Here’s Martin Beck, senior economic advisor to the EY ITEM Club:
“Despite today’s ‘giveaway’, the chancellor has been cautious. Borrowing falls below 2% of GDP from 2023-24 onwards, meaning a current budget surplus of £ £25bn or just under 1% of GDP in 2024-25.
So the most prominent of the chancellor’s new fiscal targets will be met with ample headroom. Combined with any further cuts in the OBR’s scarring estimate, the chancellor may well end up with a big pre-election war chest to spend on tax cuts or spending increases.
That included cutting its estimate of the economic scarring of Covid-19 from 3% of GDP to 2%. Shearing says:
The OBR handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the chancellor spent some of the windfall a substantial amount was saved – allowing him to start building a war chest that could be deployed ahead of the next election.
He banked a significant amount of the forecasted improvement in the public finances, leaving him with £17.5bn in headroom against his new fiscal rules. What’s more, given that the OBR is still forecasting more scarring than the Bank of England (1%) and us (closer to zero) there is a good chance that the chancellor’s headroom against his new rules will increase further in future forecasting rounds. A quick back-of-the-envelope estimate taking account of the measures announced today suggests it may end up being closer to £25-30bn by 2024-25.
This would give the chancellor room to either increase spending or (perhaps more likely) cut taxes ahead of the next election. Viewed this way, it’s difficult to escape the feeling that this was a budget designed to meet political rather than economic objectives.
This is what Richard Hughes, chair of the Office for Budget Responsibility, told the PM programme a few minutes ago when he was asked to give a big picture explanation as to what the budget is doing on spending. He was asked if Rishi Sunak was spending all the extra allocated to him from better-than-expected growth figures. Not entirely, Hughes said. He went on:
Our forecasts gave the chancellor £35bn extra in receipts before he took any policy decisions in this budget, and that was a windfall from both strong growth in the medium term but also higher inflation in the near term, which gave him a bit more what we call ‘fiscal drag’ in forecasting terms.
He added to this £35bn at an extra £15bn pounds in tax rises, the ones announced back in September, which took his overall spending spending review war chest around £50bn pounds.
He spent about £30bn of that. Half of that went straight from the new health and social care levy into the health service and social care sector. And then he used the other half to essentially reverse the cuts that he had pencilled in to other departmental budgets since the start of the pandemic.
But that did leave him about £20-25bn left over after he did his spending review and he used that to reduce borrowing in every year, and in particular to meet his target to get debt falling over the medium term, which he needs to get falling by 2024-25, according to his new fiscal rules.
A 'Boris budget', or 'Brexit Blairism' – what thinktanks say about the budget
We posted the IFS’s verdict on the budget at 4.29pm. Here are assessments from three more thinktanks.
From Torsten Bell, chief executive of the Resolution Foundation, a thinktank focusing on inequality and low pay
The chancellor has today delivered a ‘Boris budget’ by spending half of the large £141bn borrowing windfall that was handed down by the Office for Budget Responsibility.
He’s used that windfall to spend significantly more, especially in the next few years. The lasting effect of that extra spending is to allow him to partially reverse some of his own decisions by reinstating cuts to aid spending, and increasing universal credit generosity for working claimants.
But the forecasts contained far less good news for household finances. Higher inflation will all but end income growth next year. The chancellor’s welcome reduction in the universal credit taper will soften, rather than tackle, the cost of living crisis facing millions of families across the UK today.
A fuller verdict from the Resolution Foundation is here.
From Ian Mulheirn, executive director for UK policy at the Tony Blair Institute
The chancellor recanted on the Conservatives’ 11-year experiment to shrink the size of the state, concluding that running public services on a shoestring is no longer compatible with winning elections.
However the £30bn exchequer cost of Brexit each year has forced the chancellor to choose between respectably-funded public services and keeping taxes low. Sadly that’s one legacy of the past 11 years that the government doesn’t yet seem willing to revisit.
The chancellor’s statement was laced with references to returning to spending levels not seen since 2010, a remarkable recantation of much of the past 11 years. Post 2010 austerity agenda embodied two beliefs. One was that getting the deficit under control was key to safeguarding the economy and the public finances. The other was that this should be achieved by cutting deep into the functions of the state. Sunak has doubled down on the first but repudiated the second.
Rishi Sunak shares George Osborne’s commitment to balancing the day-to-day budget. His new fiscal rule commits the Treasury to making sure all current spending is tax funded by 2024-25. But unlike in 2010, he has addressed the risk of overhasty withdrawal of fiscal support from a still-fragile economy, loosening the purse strings by £25bn next year compared to previous plans.
But the chancellor’s decisions on public spending were more remarkable. After a year of record tax rises, the chancellor showered more additional money of public services than anyone anticipated. And while spending in some areas will remain tight, the big picture it that this government wants to undo the failed experiment of shrinking the state, which his predecessors made the key dividing line of British politics. Sunak has concluded that running the public services on a shoestring is incompatible with winning elections.
From Ryan Shorthouse, chief executive of Bright Blue, a liberal conservative thinktank
Finally, Boris’s boosterism has defeated Treasury orthodoxy. This is a very different Conservative government to the ones in the last decade – choosing, as the chancellor proclaimed, to invest rather than retrench. Today was the definitive farewell to the age of austerity. Really, we are returning to the New Labour days – Brexit Blairism, if you like.
The Women’s Budget Group (WBG) which campaigns for a gender equal economy, accused the chancellor of “papering over the cracks” exposed by the pandemic, rather than a transformative rebuilding of the economy.
WGB director Dr Mary-Ann Stephenson welcomed some positive announcements, including the £500m promised for family hubs, but pointed out that “75 new hubs won’t fill the void left by the closure of more than 1000 children’s centres between 2009 and 2018/19”.
In too many areas, she said the spending did not come close to making up for the cuts of the last 10 years, let alone the impact of the pandemic, particularly on women. She said:
The budget speech devoted more time and detail to alcohol duty than to policies on care, housing, climate and violence against women, all of which are more important to women than saving a few pence on a bottle of prosecco.
She said it was a hugely disappointing budget for the childcare sector which has been starved of cash for year. “In 2019-20 the free hours [of childcare] were underfunded by £662m, the additional £170m funding [promised by the chancellor] doesn’t even make up for that, let alone cover the increased costs of the national living wage.”
Stephenson also criticised the fact that the chancellor made only passing mention of the epidemic of violence against women and girls. “The £185m for support services for victims/survivors falls far short of the £409m that Women’s Aid estimates is needed for domestic violence and abuse alone,” she said.
Rishi Sunak’s budget made almost no mention of universities – to the relief of many of the sector’s leaders after months of speculation about radical changes to their funding in England.
Higher education was notable mainly by its absence in the budget, other than a recast commitment to the government’s 2.4% of GDP target for research and development spending, and delaying the time taken for reaching the £22bn target until 2026-27.
But the government had for months signalled that it was preparing a response to the Augar review on post-school tertiary education funding, and Sunak’s spending review had been expected to tackle forecasts for rising student loan write-offs. Tuition fee cuts, faster loan repayments or student number limits were all being mooted within Whitehall.
Nick Hillman, director of the Higher Education Policy Institute,observed:
We still don’t know what, if anything, will happen to student loans or student numbers or tuition fees. This is surprising because, given major changes can take a couple of years to introduce, we will soon approach the point where it is not feasible to roll out really big new changes smoothly before the next election.
On further education there was an £1.6bn increase in spending, including for the new T-level vocational courses for post-16 education. But the increase only means that overall funding will keep pace with the rising numbers of 16- to 19-year-olds in England’s population.
Sunak also announced £560m to fund a new adult numeracy programme, Multiply, which aims to improve basic maths skills. The fund will open next year, offering classes and online courses for adults without a pass grade in GCSE maths.
OBR says freeports unlikely to boost economic activity overall
The government argues that one of the advantages of Brexit is that it gives the UK the ability to set up freeports, with tax freedoms that go beyond would have been allowed under the EU. But in its report today (pdf) the Office for Budget Responsibility says freeports will cost £50m a year from 2022-23 onwards and that they will not boost the economy overall. It says:
Given historical and international evidence, we have assumed that the main effect of the freeports will be to alter the location rather than the volume of economic activity, so the costs have been estimated on the basis of activity being displaced from elsewhere.
To be fair, that does not make the policy wrong. When he was the PM’s chief adviser, Dominic Cummings was reportedly in a meeting where officials told him that freeports would not generate new jobs, but just move them from one part of the country to another. That was the whole point, he is said to have replied.
The UK’s cost of borrowing has fallen today, in a post budget statement boost to the chancellor.
The yield, or interest rate, on Britain’s benchmark 10-year gilts has dropped from 1.11% on Tuesday to below 0.98% today.
That’s the biggest one-day move since March 2020, when nervous investors were seeking the safety of government debt. Earlier this month, it hit 1.2% for the first time since May 2019, amid speculation that the Bank of England was preparing to raise interest rates next month.
Long-term borrowing costs have also fallen sharply, as measured by the yield on 30-year government bonds.
See 30y UK gilt today. Yields fell a massive 15bps. Will save the taxpayer a fortune. Reflects appreciation by mkt that Rishi will devote the majority of the benefit of higher economic growth to deficit reduction. pic.twitter.com/6GFTisalRg
Bond yields fall when prices rise, and bond traders are reacting to the news that Britain won’t be borrowing as much as previously forecast.
The Debt Management Office, which handles bond issuances, said it plans to issue £194.8bn of gilts in the current financial year, a drop of £57.8bn [that’s to cover maturing bonds as well as new borrowing].
Matthew Bennett, investment manager at NFU Mutual, explains:
“The improved economic forecasts combined with relative few spending pledges means less government debt will be issued next year than previously forecast and markets reacted to this change in supply dynamics.
“However, this move could easily reverse over the coming weeks and months depending on policy decisions from the Bank of England, global economic developments and the stickiness or otherwise of inflationary forces.”
Budget fails to address NHS staffing shortages, health leaders claim
Andrew Gregory
The record high NHS waiting list in England will “continue to grow” because the budget failed to address the workforce crisis, health leaders have warned.
Rishi Sunak said he was announcing a £5.9bn package of NHS capital funding to help tackle the enormous backlog, which now stands at 5.7 million patients.
The chancellor pledged to deliver 30% more elective activity by 2024-25 compared to pre-pandemic levels. This is equivalent to millions more checks, scans and procedures for non-emergency patients, he said. The funding will be used to set up 100 “one-stop-shop” community diagnostic centres across England and upgrade 70 hospitals.
But NHS chiefs and health leaders cautioned that the funding would effectively be pointless without the urgent recruitment of thousands more staff to diagnose and treat the millions of patients waiting for care. The health service currently has about 100,000 vacancies.
Dr Andrew Goddard, president of the Royal College of Physicians, said he welcomed the “much needed” investment in diagnostic facilities. He went on:
But it’s no good having new equipment if there aren’t enough skilled staff to make use of it. The size of the NHS workforce is one of the biggest limiting factors on our ability to get services back on track. To make the most of this new funding we need enough staff to conduct tests and deliver treatment, which is why we’re disappointed that the government didn’t take the opportunity to significantly increase the number of medical school places.
Pat Cullen, general secretary of the Royal College of Nursing, added:
Any new centre or clinic requires skilled staff, as does the backlog of people needing care and support. Announcements on new hospitals and clinics raise patient expectations but without investment in the nursing workforce waiting lists will continue to grow.
Saffron Cordery, the deputy chief executive of NHS Providers, which represents NHS trusts, said NHS chiefs were “disappointed and frustrated” that there was no increase in Health Education England’s NHS education and training budget. She went on:
Workforce shortages and the resulting unsustainable workload on existing NHS staff are currently the health service’s biggest problem. They can only be tackled with a robust long term workforce plan and increased longer term investment in workforce expansion, education and training, none of which are currently in place.
Amy Dodd of The One Campaign to end extreme global poverty said the Chancellor should have acted to restore the 0.7% target immediately, having cut it to 0.5% last year.
Dodd also expressed concern that the “lack of clarity” in today’s statement could mean the Treasury was planning to further dilute the UK’s commitment to development aid by using it to fund things such as Covid vaccines, which were not in the original target.
“This lack of clarity given is disappointing and strengthens concerns that the Chancellor is using accounting trickery to make further cuts.
Having already shrunk the UK’s support for development, implementing further cuts by stealth would exacerbate the challenges of climate and Covid already faced by developing countries.
“If Government is serious about tackling global challenges, as it should be on the eve of G20 and Cop26, it should commit to returning to 0.7% now, as the UK economy bounces back to pre-Covid levels and when it is most critically needed.”
Bernard Aryeetey, Global International Affairs Director of WaterAid, said millions of the world’s poorest people will continue to miss out on clean water, decent toilets and good hygiene until the target is restored.
“We estimate that 10 million people will miss out every year until the budget is restored.
The Chancellor’s delay on restoration means three more years of dirty water, further infant mortality and the wider spread of disease for millions in vulnerable communities.
Nick Dearden of the Global Justice Now campaign said locking in aid cuts for a further three years will have “a devastating impact, costing countless lives in the global south - and that should weigh on Rishi Sunak’s conscience.”
Stephanie Draper, of the Bond network for UK organisations working in development, said the Chancellor was again “balancing the books on the backs of the poorest” while undermining trust in the UK.
“This makes the UK’s standing in addressing global inequality even more questionable, whilst severely undermining crucial Cop26 negotiations.”
Boris Johnson and Rishi Sunak have been visiting a brewery to promote their changes to alcohol taxes. Whether or not they were able to organise a piss-up on the premises does not seem to have been resolved, but they can certainly stage a photo oppotunity.
Boris Johnson and Rishi Sunak visit Fourpure Brewery in Bermondsey Photograph: Dan Kitwood/Getty Images
Johnson and Sunak manhandling barrels. Photograph: Dan Kitwood/AFP/Getty Images
And Johnson and Sunak posing with drinks – even though Sunak does not drink, and Johnson is supposed to be on the wagon until his next baby is born, as a gesture of solidarity with his wife. Photograph: Dan Kitwood/AFP/Getty Images
Although the government is promoting the alcohol duty reforms as a big feature of the budget, in fiscal terms they are insignificant. According to the budget red book, in 2022-23 the alcohol measures will cost the Treasury £565m - although £545m of that is the cost of the alcohol duty freeze, and duty reform is only costing £20m (which means it is not really a net giveaway at all). Even by 2026-27, the alcohol duty reform is only due to cost the Treasury £155m.
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