Regret. The last Prime Minister, one Tony Blair, with any significant parliamentary majority has always said this was his over-arching sense when reflecting on his lack of radicalism in his first term. Cummings and co seemed determined to learn that lesson starting with this week’s Budget, always a big moment for any new administration providing a key opportunity to set the tone for a new Government. Think Thatcher’s radical Budgets that ended the Keynesian post-war consensus. Or even Brown’s calls to end child poverty as his defining Treasury mission.
In this vein, in recent weeks, we have seen No10 trumpeting £100bn on infrastructure. Levelling up the regions. Proposals mooted for a significant rolling back of personal taxes to provide the consumer spending power the economy so badly needs. Wealth and sustainability taxes. An end to austerity. A clear narrative for balancing economic growth and reduced taxation within fiscal discipline had emerged.. This Budget would have sought to square away the tension between heavy spending in the North paid for by some tax rises in the South and between ending austerity and keeping fiscal discipline; some of which was bubbling over into the open on Tory backbenches.
Security first: Moving Towards Radical Lite
Yet already we are moving to ‘radical-lite’, a Corona Budget. Coronavirus with its public health emergency, economic forecast and consumer confidence implications has deferred this some of the more radical elements of this week’s Budget. We expect to see a more ‘Manifesto Budget’ that sticks to some major Tory pledges from the election campaign with the National Infrastructure Plan, major spending commitments and the more controversial tax changes pushed back to the Autumn Statement if not beyond. Many of the revenue raising ‘stealth taxes’ such as the Fuel Duty rises and the Mansion Tax look to be off the table for now but there will be hard work going on right now in the Treasury to find less controversial ones to throw in there.
The over-riding sense in Nos10 and 11, via the Joint Economic Committee which has already done away with much of the Javid positions on fiscal hawkishness, sees maintaining already fragile consumer confidence in light of coronavirus, Brexit (although they could never say it) and a weakening global economy as the key barometer of this week’s Budget.
With Parliament potentially being suspended then it is also a Finance Bill which will need to get through Parliament relatively quickly. Tory backbench push-back on areas such as the Mansion Tax and Fuel Duty escalator has been stronger than anticipated and with difficult votes this week on telecommunications (read Huawei) the sense is not to rock the still mostly loyal backbenchers right now. But this Budget will not be without its own form of radicalism.
So, what does this mean in reality? There will be greater spending commitments and short-term public services pledges than might be seen in Budgets of normal times. The NHS will receive emergency liquidity injections. Consumers will be given support if they are unable to work, not least those self-employed or in less secure work. Measures from tax holidays through to bridging loans will ensure badly hit companies, especially SMEs, can stay afloat. Long mooted business rate reductions may be brought forward. In the long-term, the fiscal rules of the government not spending more than 3% of GDP are potentially to be relaxed, marking a fundamental shift in the size and shape of the state in the coming years.
Public services, especially healthcare and police officers, will be boosted via reductions in the Entrepreneur Tax Relief, increased allowances to increase Council Tax to fund social care in the short-term and some green taxes, especially on diesel, will provide some much-needed revenue. Pension tax relief looks like it may be reduced but not my as much as some mandarins were calling for. The hunt is on for lower impact ‘stealth taxes’ to keep the money flowing. There is also a desire for some clearer sustainability taxes, or at least taxes that can be branded as such. There will be a few rabbits out of the odd hats for the Tory shire faithful, though as Sunak will be acutely conscious of the need not to be seen as a No10 stooge and to begin to build his own narrative.
Pennies in consumer pockets
The Treasury will look to deliver more money in people’s pockets. It is likely there will be movement on stamp duty on the Help to Buy scheme. National Insurance will be increased, albeit more slowly than first broadcast. The National Living Wage will rise. Veterans, a core Tory constituency, will have a package of measures to support them back into work. There are last minute discussions ongoing in Horse Guard’s over inheritance tax reductions. There is also an effort to tweak employer support through the tax system with breaks for veterans’ employment, new parents and tackling rough sleeping and homelessness.
Quick infrastructure wins
And of course, infrastructure. Schemes which are perhaps lower cost but ‘shovel ready’ and can demonstrate a return on investment and be ‘seen’ in the next few years are going to be prioritised. Broadband, 4G ‘not spots’, flood defences, some train and bus schemes and roads (both new and post winter repairs, potholes always being a sure vote winner) are likely to be given high prominence in the Red Book. The Green Book, which outlines the cost-benefit analysis and go ahead for major projects is already being reviewed and such an announcement will be portrayed as a core part of the levelling up agenda, even though the big ticket announcements will not come until the Autumn Statement 2020. On the levelling up agenda, it looks like up to 1500 civil servants may be on their way to the Tees Valley as part of a Treasury restructure. Just in time for the Tees Valley Mayoral elections.
Deferring the tricky questions
All Budgets are a play around competing priorities and political tensions. How well, or willing, the political actors play this can define an administration. In some ways, Coronavirus provides a useful cover for postponing some of the more tricky decisions around major infrastructure and fiscal discipline for another day while making the government look decisive and empathetic. Or ‘strong and stable’ as another, less radical, PM might have said.