The Politics of the Budget – Dr Karl Pike
The day after the Budget, when the economic analysis from think tanks like Resolution Foundation and the Institute for Fiscal Studies comes in, we begin to grasp the kinds of messages and political debates that will actually spring from the Budget.
On Budget day, the Chancellor Rishi Sunak had a clear story in his speech to the House of Commons: the government would continue its pandemic economic support package for the majority of the year, though with new cliff edges (e.g. the end of the £20 per week uplift in universal credit come the autumn); and that the crisis, along with the costs of government support, meant there were now ‘huge challenges’ for the public finances. This necessitated, the Chancellor said a number of times, being ‘honest’ with the public. That honesty was about the rise in corporation tax, as well as freezing tax thresholds – both of which have featured in media coverage since.
The day after the budget, other impacts are becoming clearer. There are warnings about the impact on living standards and inequality and The Resolution Foundation highlighted (with the end of the UC uplift) the ‘poorest households facing a 7 per cent fall in income in the second half of 2021-22’. In terms of spending on public services, compared with plans before the pandemic, day-to-day spending is set to be £15 billion a year lower in real terms in 2024-25. Unprotected government departments – excluding schools, the NHS and defence – could ‘now be facing real-terms cuts in 2022-23’. Areas like justice and local government are being mentioned once again for further austerity.
So, what does all of this mean for the politics of the budget? It’s fair to say that public services didn’t feature much in the Chancellor’s speech. The Leader of the Opposition, Keir Starmer, highlighted the lack of measures related to social care, for example. Sunak’s message focused instead on business recovery, business investment and (for larger companies), tax. The ‘honesty’ was about tackling ‘our debt problem’, as he put it, not supporting what some will see as the need for further spending after this year – a year that has accentuated the inequalities in our society and may well have worsened them. There seemed to be an assumption that, come the autumn, people will be doing fine economically, and that Sunak needed to focus on the recovery and growth opportunities that he could encourage. Yet, for unprotected government departments, as The Resolution Foundation put it, ‘it will feel very much like George Osborne is still the Chancellor’.
This is connected to something Starmer said in response to Sunak’s speech. On corporation tax, he argued that ‘the decade-long corporation tax experiment by this Government has failed’. He was referring to the Osborne policy of cutting corporation tax when David Cameron was Prime Minister – something Osborne was keen to keep doing. The question of whether the next few years will feel, for voters, like a repeat of past Conservative administrations is an important one. Starmer was of course keen to keep Sunak and Boris Johnson closely connected to Cameron and Osborne – ‘this government’ – in the face of an approach to corporation tax that couldn’t feel more different. Indeed, particularly following the very dramatic end of Cameron’s leadership, and the ensuing Brexit tribulations, trying to portray the current Conservative leadership as in some way the ‘same government’ is a challenge. On public services, and living standards come the autumn, Starmer may have a greater chance. Paul Johnson, the IFS Director, put it very well: ‘No money to deal with post-pandemic priorities. No policies to deal with the inequalities that have opened up over the last year between rich and poor, old and young, more and less well educated’.
Yet, of course, it hasn’t been an uncomplicated Budget for Labour. The party’s communication of its ‘now is not the time to raise taxes’ message was a little confusing in the run-up to the Budget. When asked about the (then rumoured) corporation tax increases, Labour’s line certainly sounded like opposition to any tax increases in the budget, including to corporation tax. This line was then tweaked, arguing Labour wouldn’t support any immediate tax increases in the budget. Labour’s pre-budget messaging then, if the odd nuance and caveat were missed, sounded pretty close to suggesting this budget shouldn’t be touching any tax rates – odd indeed if, as Starmer suggested in his actual budget response, Labour wanted a budget which focused more on inequality and the longer-term funding of public services.
On this point, Stephen Bush has made an important observation: the Chancellor increasing corporation tax removes one obvious revenue-raiser for Labour at the next election, which raises longer-term questions for the Opposition. Public spending in unprotected areas seems set to be squeezed, and there is currently no sign of further spending to tackle post-pandemic inequality. Right now, Labour will probably feel comfortable continuing to point to things the Government could be doing more of, but will the politics of debt return? Again, it comes back to this question of association with the last decade of Conservative politics. Johnson and Sunak will of course be able to amend their plans in the coming years, and judge spending priorities closer to the election – but will their path come close, again, to austerity (at least for some services), albeit with some tax increases too? And how often will we hear the familiar refrain of ‘I’d love to, but I’m afraid we can’t make promises that we can’t afford'. On corporation tax, Osborne’s legacy is being undone, but his political strategy on the public finances may make a comeback.
Note: This article gives the views of the authors, and not the position of the Mile End Institute or Queen Mary University of London.