It’s a tradition on the Sunday preceding the spring statement that the chancellor of the exchequer does the political TV programme circuit. It is also a tradition that he, for it is always a he, says as little as possible. The content must be retained for parliament’s ears first, but mood music can be set, and this was a sombre song.
Rishi Sunak is clearly uncomfortable. The gap between the rhetoric of his Mais lecture, which set out the type of chancellor he wanted to be, with the reality of post-Covid Britain is stark. This is a man who wants to be cutting taxes and stimulating enterprise, but in reality has increased taxes more in the two years than Gordon Brown did in ten. This reality hurts him more than any political attack rooted in how difficult life is expected to be for people on low incomes in the coming months. Understanding that gives us a better insight into what to expect from him this week on tax, energy and inflation.
Firstly, he is highly unlikely to reverse his decision to increase national insurance from April 1. The political pressure to do so has been constant for months now and has been firmly resisted by both No 10 and No 11. While lower than expected borrowing gives the fiscal headroom to move on this policy, according to the IFS and others, the chancellor will stick with it in the hope that the headroom can be drawn in tax cuts preceding any general election next year. It’s a tax rise that disproportionately hurts those on lower incomes as well as one that generates substantial revenue from higher earners. Labour’s attacks on it lack a bit of spirit as a consequence, as they know substantial revenue would need to be generated from elsewhere to fund health and social care. Likewise the SNP are largely content to criticise it and spend the Barnett consequences that will flow from raised spending on the NHS in England and Wales.
Sunak’s stealth-like resistance to cancelling this tax hike also hints he will resist calls to cut fuel duty that grew this weekend and will continue to do so up until the point he is on his feet. With petrol prices sitting at £1.60 to £1.80 a litre across the county, a 5p fuel duty cut would simply be lost in a bit of smart shopping around. Fuel duty has been frozen for ten years now. A brief cut would mean having to increase it again ahead of an election, diluting his wider tax-cutting message. Hiking fuel duty would be hugely unpopular, but it would also give the SNP an attack line in rural areas that the Tories could do without inflicting upon themselves.
The chancellor therefore knows that any fuel duty cuts must be permanent and that the compound effect of that on Treasury revenues for years to come just isn’t worth the political pain. Plus saving a family £3 on a tank of fuel just now is largely pointless when home heating bills are soaring by hundreds of pounds.
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With fuel duty cuts and reversing the national insurance rise ruled out, the chancellor’s next judgment is really whether to do anything at all. It is a spring statement after all, where tweaks rather than wholesale change is anticipated. There will be a temptation to ride the political storm out, knowing that the war in Ukraine will remain the headline story for many weeks and likely months. The clocks are changing, the days are brighter and warmer, any help for energy bills on top of what’s already being announced could be held to October’s budget as winter looms. If Sunak holds his nerve on national insurance and fuel duty, then surely he will do the same on energy bills.
If there is to be a rabbit from this spring statement, my money is on a change to the system of uprating benefits. It is customary for benefits to be uprated in April in line with inflation rates from the preceding September but it’s a practice borne from a time where inflation could be expected to be stable. The reality is that inflation stands at 8 per cent. Up 5 percentage points since September, and rising still.
The chancellor could address this and sell it to the nation as pragmatism rather than a substantial ideological shift. If universal credit rose in line with inflation, he would deliver substantial support for five million low-income households across the country in receipt of it. It helps people both in and out of work, supporting some families earning as much as £50,000 a year. It’s a far fairer system than seeking to redistribute through the council tax system as the energy rebate does. It would be sold to Conservatives as maintaining the integrity of a simplified welfare system that makes work pay. Labour and the SNP would have to support it.
While this plan has merits, it too could hold until October. The chancellor will be deeply reluctant to move now knowing that he’ll probably have to do so again then anyway. The benefits of any relief for families cooked up this week will evaporate faster than the gas that’s fuelling this cost-of-living crisis. No matter how hard life becomes for those living on the breadline, and it will be harder than at any point in the past 30 years according to the Joseph Rowntree Foundation, it will be political expediency that rules from this chancellor.
The raw economic outlook in isolation suggests the chancellor must act, but there’s nothing from his past actions or speeches that indicates he has any intention of doing so. Britain remains in a political pre-election holding pattern and it looks awfully like millions of people in need of help now will be waiting until winter before any serious help lands.
