Reopening the property market during lockdown
Reopening the property market during lockdown
From the Queen’s Speech to the next election: what now for the government’s agenda?
From the Queen’s Speech to the next election: what now for the Government’s agenda?

Budget Boost for Brand Rishi

Words by:
Associate Director
March 5, 2021

On Wednesday morning it felt as though anyone that reads the newspapers had essentially already read the Budget. Once the Chancellor had finished speaking, whilst there were few surprises, it was clear this was a carefully crafted Budget that boosted Brand Rishi. The specifics of many measures demonstrate a careful attention to detail and deftly balanced a number of competing pressures.

While many headlines the following day focused uncomfortably on the headline tax rises, the Chancellor fared much better in the editorial section of several papers, particularly The Times, The Telegraph and The Sun. Subsequent polling also paints a positive picture with the Conservatives opening up a 13 point lead this week. Sunak has carefully balanced a generous extension of pandemic support for business and workers with significant steps later in the Parliament to start rebuilding the public finances.

Tax rises successfully navigated but questions over public services

The revenue raising measures are carefully crafted to create flexibility and seek to avoid cutting off the recovery prematurely. The headline increase to corporation tax is cleverly designed coming into force in 2023, far enough away to provide flexibility to soften as a pre-election bonus should the recovery and improved tax receipts allow. It also carefully excludes many smaller businesses with lower profitability. The Chancellor sent a clear message about the importance of maintaining sustainable public finances but wisely declined to box himself in with specific fiscal rules at this stage.

As the dust settles, one clear looming issue is the future of spending on public services. Funding for the NHS and education barely got a mention in the Budget speech, while social care was completely absent. Buried in the Budget documents were significant constraints on future spending on public services and less additional support for the NHS than the NHS Confederation and British Medical Association claim is needed to deal with the fallout from Covid. This has led to accusations of continuing austerity by the backdoor and the optics haven’t improved with the subsequent confirmation that NHS workers will only get a 1 per cent pay rise.

The Chancellor will come under intense pressure to allocate more to public services, with Labour already leading the charge on NHS funding. His ability to do so will depend on driving even greater growth than is forecast by the OBR – a tall order but hard to rule out with certainty given the unprecedented nature of the pandemic – or his ability to find additional revenue raising measures. He has done well to quell concern among his backbenches for the tax rises in this Budget, partly by cynically but effectively giving many colleagues local wins from various levelling up funds. But repeating that trick again later this year or next Spring will be much more difficult.

Pork barrel politics or overdue levelling up?

Accusations of pork barrel politics, while apparently valid, won’t worry the Chancellor too much. These accusations tend to upset the political commentariat much more than most voters. Ultimately, every extra grant in Conservative held towns means another pacified colleague and a better shot at retaining seats that hold the key to a majority at the next election.

Of more significance is whether Sunak’s emerging blueprint for the future economy will have any success tackling the entrenched, structural challenges of poor productivity, low investment and geographic inequality. He is betting big on Freeports, a pet project of Liz Truss and long seen as an exciting prospect by the libertarian grouping of MPs Sunak is most closely associated with such as Kwasi Kwarteng, Dominic Raab and Oliver Dowden. However, they do have their critics who claim they simply displace investment that was already likely to take place in other areas, rather than generating additional economic activity. Until now, these arguments have been academic in the UK context but they can now be tested thoroughly as this policy is rolled out.

Warm Words on Green Growth

In a similar vein, the Chancellor talked a good game on green growth with a new UK Infrastructure Bank located in Leeds the headline new policy in this area. But it can’t be ignored that there is now a not insignificant backlog of policy strategies, plans and white papers that are all seen as key to progress this agenda.

The Build Back Better plan published, alongside the Budget, listed no fewer than 21 different strategy documents due for publication over the next 12 months, many of which are key to decarbonisation and many of which have been promised for months (The Transport Decarbonisation Plan, the Industrial Decarbonisation Strategy and the Hydrogen Strategy to name just three). Otherwise, this Build Back Better Plan was essentially a re-hash of existing polices already set out in the Prime Minister’s ten-point plan and the National Infrastructure Strategy.

Spend now pay later works for Rishi

In summary, this Budget could be crudely characterised as ‘spend now pay later’ but it is nevertheless cleverly crafted politically. He has signed up his backbench colleagues for significant tax increases to start repairing the public finances, gone a long way to meet business requests for continued pandemic support and linked the recovery strategy crudely but probably effectively to the Conservative Party’s electoral strategy. The Party wants to head into the next election with a strong recovery platform, based on a post-Brexit Global Britain narrative. This Budget started to lay those foundations.

There are still some gaps for Keir Starmer’s Labour to target. The planned squeeze on spending for public services, particularly the NHS, is the most obvious. There are also question marks over how well attuned some measures are to the most disadvantaged in society. Ending the £20 Universal Credit uplift at the same time furlough ends may have difficult optics come September.

Nevertheless, the Chancellor will be pleased with his efforts this week. He has delivered a Budget under exceptionally challenging circumstances that has mostly won over his parliamentary colleagues, blunts Labour’s lines of attack in a number of areas and reinforces his status as the heir apparent to the Prime Minister. Nevertheless, delivering a politically smart Budget that looks good for a week is quite different from delivering economic transformation over the next few years. Rishi Sunak has passed an important test, but the examination isn’t over.

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