Is it time to bring back the feel-good factor?

6 March 2020

DRD Partner, Pete Bowyer, takes a look at the upcoming annual budget.

American poet and civil rights activist, Maya Angelou famously said, “I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” Despite all his approximations with the actualité and his lurid personal indiscretions, it is a lesson the Prime Minister, egged on by his Svengali chief advisor, has learnt well. Polling here in the UK of the Conservatives’ new Blue Wall voters which surged the PM to power in December, closely mirroring Trump’s Rust Belt voters, show that they want to be made to feel better off, even if, in a post-Brexit world, they are not materially so.

Which brings us neatly to Wednesday’s Budget, the first since the Election and, indeed, the first since October 2018 (last year being the first since 1900 without an annual budget; in return we’re getting two this year – wahey!). It’s fair to say that the Government is split on how to approach it.

On the one side are the ‘competent managerialists.’ They say we are in the eye of a storm: COVID-19 has changed everything. The Government’s first duty is to keep its citizens safe and the Chancellor’s priority must be to demonstrate how the Government intends to pick up the tab for dealing with the virus and manage the impact on its tax base. They point to FlyBe as an example of a company teetering on the edge that has gone into extinction because of the virus. They warn that unless the crisis is dealt with competently it will not just be bad businesses going to the wall, but good ones too. Nosediving global markets are a foretaste of this and will inevitably constrain how much ministers have to spend in future, as the 2008 financial crash clearly showed.

The managerialists argue that this budget should be little more than a holding operation. Measures have already been announced to raise the minimum wage by 51p to £8.72 an hour for over 25s from April and see the National Insurance threshold rise to £9,500 (from £8,632). For them, the overwhelming focus of the Budget should be about delivering on existing manifesto commitments: in particular, 50,000 extra nurses and 20,000 more police. They want to show that the Conservatives are keeping their promises, and that they will need to be paid for by increasing ‘sin taxes’: on cigarettes and alcohol, naturally, but more controversially by raising fuel duty for the first time in a decade to ensure the budget is fiscally responsible (had fuel duty continued to rise at the same rate under the Conservatives as it did during Labour’s 13 years in office, the UK would have been able to close the deficit by 2015 – George Osborne’s original timetable).

They conclude that the vision thing can wait until later in the year (in the Autumn budget, or when the three year departmental spending plans are announced) once the COVID-19 scare has passed. In any case, a novice Chancellor needs time to get his feet under the desk.

On the other side, are the ‘ambitious splurgists.’ They say that now is exactly the time to turn vision into practice, the time to be bold, not boring. To them, a Government’s first Budget is the key opportunity to set the direction of travel for the whole Parliament, just as Geoffrey Howe did in setting out Thatcherite monetarist policy in 1979 and Gordon Brown did by giving independence to the Bank of England and introducing a windfall tax on the utilities in 1997.

They want to use the Budget as an opportunity to address long-term structural problems within the UK economy which they believe have been ignored for too long: poor productivity and poor public services. What this calls for is massive new government investment in infrastructure spending, boosting R&D expenditure and increasing capital allowances to incentivise private sector investment too. The resultant shiny new railway stations, hospitals and high streets will be a visible symbol of a new wave of (independent) British optimism making the Conservatives’ (new) core voters feel good about themselves, the country and, crucially, Boris.

They regard burdening motorists with tax rises to pay for this splurging as a betrayal, a punishment even, of those exact same voters who delivered them to power. Instead, they want to reward them by continuing to freeze fuel duty and even cut the basic rate of income tax further to 18% whilst maxing out on the nation’s credit card through taking advantage of historically low interest rates which they believe are here to stay (servicing the nation’s interest payments has fallen from 6.5% of tax revenues to 4.6% in the last decade).

The key question is: which course of action will Rishi Sunnak take? On the face of it, that seems easy to answer. Old schoolboy chums of the Chancellor have told me how he was born to be boring, determined to be dull, eschewing their teenage frivolities in favour of burying his nose in arcane economic textbooks (admittedly, no bad traits in a Chancellor). This, of course, is in complete contrast to his swash-buckling, high-rolling, free-spending next-door neighbour. The answer, when it comes shortly after mid-day on Wednesday, may give us the clearest indication yet of the extent that No.10 has annexed the Treasury.

PHOTO: Twitter, @RishiSunak

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