GK Insight – Spring Statement

When Rishi Sunak rises to deliver today’s Spring Statement, it would be easy to forget that he has been ChanceIlor for barely two years. At the same time, it’s hard to recall any Chancellor who has had quite such a fierce baptism of fire. A plausible case could made for Hugh Dalton in 1945 (immediately after the Second World War) or Sir Geoffrey Howe in 1979 (following the so-called ‘Winter of Discontent’). But Sunak has had perhaps the hardest inheritance of all. Not only did he become Chancellor with precious little ministerial experience, but he took over in unusually difficult circumstances – after 10 Downing Street had made the position of his predecessor and friend, Sajid Javid, completely untenable. Then, almost immediately, Sunak was confronted by a Covid-inspired economic meltdown before, more recently, the gravest cost of living crisis since the 1970s.

Despite delivering just three Budgets – which is three more, incidentally, than Javid – Sunak has already made a profound impression on British politics. Indeed, he was almost omni-present during the Covid crisis and introduced everything from the popular (but probably counter-productive) ‘Eat out to help out’ initiative to some highly successful but hugely expensive job retention schemes. Consequently, as the Institute for Fiscal Studies (IfS) has pointed out, Sunak (a self-proclaimed low tax Conservative) has felt it necessary to announce bigger tax increases in his two years at 11 Downing Street than Labour’s Gordon Brown managed in a full decade. To the annoyance of countless employers and many of Sunak’s own Conservative colleagues, they include some major (and pledge-breaking) increases in corporation tax – the first since Denis Healey’s traumatic spell at the Treasury in the 1970s.

The comparison with Healey is surely not one that Sunak would welcome. Healey’s period as Chancellor was plagued by many of the same problems – especially squeezed living standards, sluggish growth and persistent inflation (‘stagflation’) – that Sunak is now desperately seeking to tackle. Ultimately, Healey’s solutions proved ineffective, colleagues were alienated by some of his key decisions (especially breaching agreed manifesto policies) and the party’s leadership eluded him so, for Sunak, the precedent is hardly encouraging.

In one respect, however, the comparison with Healey is not only fair to Sunak but personally flattering. Just as Healey was never fazed by a challenge – whether during his wartime service, in government (as Chancellor and Defence Secretary) or in Opposition (as deputy Labour leader) – Sunak has consistently showed astonishing composure and resilience in the face of successive crises. Although his critics argue that he’s sometimes ‘behind the curve’ when responding to fast-deteriorating economic predicaments, it’s also noticeable that he’s happy to revisit earlier decisions and, if necessary, take steps that go completely against Treasury orthodoxies, his party’s previous stances and his own political instincts.

We may see, today, more of the same as the Chancellor considers whether his previous package on energy costs – announced only last month (although it seems much longer ago) – remains tenable when inflation and energy prices seem set to remain ‘higher for longer’ than anyone had expected. Expect ‘friendly fire’ from Conservatives who want fuel taxes to be sharply cut and the upcoming National Insurance increase to be deferred. Meanwhile, many criticisms from Labour frontbenchers are likely to be framed in personalised terms as they seek to blame the ‘cost of living crisis’ on the Chancellor and his decisions, as far as possible, rather than on worldwide events. It might not feel like it to Sunak but it’s a political compliment – reflecting the Opposition’s desire to remove some of the post-Covid sheen from someone they regard as the most likely successor to the Prime Minister (despite the Foreign Secretary’s rising standing) if the ‘partygate’ scandal, or any other, ultimately claims his scalp.

In some respects, we’re likely to see ‘more of the same’ from the Chancellor today in the form of the seriousness, courtesy and calmness that we’ve come to expect over the past two years, despite their constant crisis mode, which have ensured that – unlike Dalton, Howe or Healey – Rishi Sunak is still well-placed to make the move from Number 11 to Number 10. Is it a role that he wants? Only he will know for certain. But three things do seem different when compared with his Budget, back in October. First, since then, the Chancellor has successfully put some distance between himself and the Prime Minister – making it clear that he disagreed with No 10’s ‘partygate’ culture, as well as with some of his boss’s recent language. Secondly, the communications operation surrounding the Chancellor has become more restrained and less heavily ‘Rishi’-branded, which had become a source of irritation to some colleagues. Finally, and similarly, the Spring Statement has been preceded by a period of comparative silence from the Chancellor’s team, after its pre-Budget briefings were widely considered excessive. True, the Spring Statement is less significant than the annual Budget and events are moving so fast than any pre-briefing could soon unravel. But these are also signs of a seriousness of purpose that seems well-aligned with the increasingly difficult times in which we’re now living.

It’s clearly impossible to predict what the Spring Statement will actually say. There will, presumably, be fresh measures to help people (particularly lower earners) with their energy bills; changes to National Insurance (perhaps its threshold) might reduce the impact of the planned increase in NI rates themselves; and benefits could be index-linked differently, or more regularly, to reduce the huge gap between next month’s planned increase (3.1%) and real-world, real-time inflation.

One thing does seem certain, however. As the IfS has argued, “Sunak can smooth, delay and ameliorate the pain. But he can’t make it go away.” Quite simply, the pressure on living standards is greater than at any time for nearly 50 years. For the Chancellor, two years into his tenure, the crisis mode shows absolutely no sign of ending.

To discuss the Spring Statement and what it means for you please contact IWilton@gkstrategy.com