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Rishi Sunak is an admirer of Warren Buffett, the business magnate and investor supreme, and of a baseball analogy Buffett uses: “The trick in investing is just to sit there and watch pitch after pitch go by, and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!’ – ignore them.”
As one Tory insider told me: “It sums up the difference between Rishi Sunak and Boris Johnson. Rishi will prepare the ground and wait for the right pitch. Boris is impatient and just swings at every pitch. He wants to please the crowd.”
Today Sunak found his own “sweet spot” between fiscal responsibility and a £150bn spending boost. He offered a “best of both worlds” Budget, which allowed him to claim that the Conservatives were the only party that could be trusted with people’s money, but were also “the real party of public services”.
The Budget showed that Sunak, too, likes to please the crowd. The rabbit he held back from his record number of pre-announcements in recent days was a clever one – changing the universal credit rules so that people keep 45p of every extra pound they earn from December, rather than the 37p they keep at present. He called it a “£2bn tax cut for the lowest-paid workers in the country”, but did not mention that he was giving back only a third of the £6bn he has taken away from 4.5 million families by ending the £20-a-week uplift in universal credit.
The chancellor tried to draw a line under his £407bn of emergency spending in the pandemic, while acknowledging that the fight against Covid is not over yet. His most revealing passage came when he set out his personal credo – that “government has limits”, and the taxpayer cannot step in to solve every problem in normal times. Although he did not like announcing £36bn of tax rises earlier this year, he said, he could not “apologise for it”. But his “mission” now is to cut taxes before the next general election: the crowd he wanted to please with that remark was sitting behind him on the Tory benches.
Although Sunak reclaimed the mantle of “sound money” for his party, the “new charter of fiscal responsibility” he trumpeted was similar to the 2019 Tory manifesto pledge not to borrow to fund day-to-day spending on services and to see debt falling by the end of the parliament.
However, the overall impression he gave, as he rattled off a long list of spending commitments, was that he was reluctant to turn from Santa to Scrooge. He confounded critics expecting a tough three-year spending review by saying that all government departments would see their budgets rise in real terms. But this is not as generous as it looks. They will have to fund “fair and affordable” wage rises now that he has lifted the freeze on public sector pay from these budgets. He provided another £2bn for Covid catch-up in schools and colleges, but the £5bn total is only a third of what was recommended by Kevan Collins, who resigned as the government’s catch-up tsar. The cut to overseas aid will be restored – but not until 2024-25.
There were tensions between a spendthrift prime minister and his more cautious chancellor in the run-up to the Budget, which represents a compromise between them. But Sunak’s language served as recognition that Johnson is first lord of the Treasury. “An economy fit for a new age of optimism” was straight out of the Johnson playbook. Sunak repeatedly referenced Johnson’s previous pledges and endorsed his vision of “an economy of higher wages, higher skills, and rising productivity”.
He put Johnson’s “levelling up” agenda at the heart of his package. He told the cabinet this morning that this was “the golden thread” that ran through it. But there was only a passing reference to Johnson’s other priority – net zero carbon emissions by 2050.
As well as optimism, there was a touch of Johnson’s endless appetite for having his cake and eating it, thanks to better forecasts from the Office for Budget Responsibility on growth, the pandemic’s long-term damage, and borrowing.
Sunak was never going to “do a Biden” but he is taking a calculated gamble that the economy will grow sufficiently without a further fiscal stimulus. On his own figures, after the bounceback from Covid fades, growth will fall in two years’ time to 2.1 per cent, then to only 1.3 per cent and 1.6 per cent.
The real test for this Budget will not be the immediate headlines but how millions of people will feel in the cost-of-living crisis next April. By then, today’s tweak to universal credit will look like small beer – just like Sunak’s 3p cut in the price of a pint. In that month, people might see their pay rises wiped out by inflation of at least 4 per cent; they will see their tax thresholds frozen, their national insurance contributions up by 1.25 percentage points, their council tax bills up, and another huge increase (perhaps £300) in their energy bills.
The crowd might not be so pleased with the chancellor then. It might well feel that today’s package did not measure up to the scale of the cost-of-living crisis.