The budget will at last define a government that has stayed tantalisingly opaque. Who are they really? What do they really mean to do? This budget arrives amid a battalion of crises: coronavirus, severe flood damage from climate crisis and our homemade Brexit fallout, with billions wiped off stock markets. A crafty chancellor, watching his revenues falling, should see this moment as a God-given opportunity. Never let a good crisis go to waste, as they say. If they are genuinely determined to “level up” the nation’s inequalities then they should seize the day to borrow, tax and spend like there’s no tomorrow – because otherwise there might not be much of one.
Imagine the Conservatives really meant it. Look what they could do on a honeymoon bounce, with an 80-seat majority won on a splurging promise to end austerity. The opposition is in leaderless disarray, Brexit is done (for now), and the Tory press still crows in adulation: see those “Baby joy for Boris” and cuddly Dilyn the dog stories.
The darkening clouds give the government authority for action – there’s no better time for boldness. The Institute for Fiscal Studies (IFS) charts how every government at the height of its powers raises taxes in its first post-election budget. Next week’s needs to make the most of that tradition, or austerity will be baked into this government almost as severely as the last.
Look up, and the sky is thick with bright red kites being flown above the Treasury, testing the weather for a host of astonishingly un-Tory ways to raise tax. Target property, says one kite, pointing to vast billions of unearned, untaxed wealth in the swollen assets of older generations sitting pretty in homes bought decades ago. A mansion tax was mooted, despite the opprobrium heaped on Ed Miliband’s plan when he was Labour leader. One kite suggested replacing business rates with a land value tax: target the raw value of the land, not the house, to capture the appreciation whenever the state builds a new station or a good school nearby. Easier still, if less radical, a revaluation of council tax bands – unchanged since 1991 – so the most expensive properties pay fairly.
All these good ideas, surprisingly floated by a Conservative-run Treasury, have been shot out of the sky by every Tory organ, with much venting from backbenches too – although the council tax rebanding may possibly survive for some future date. Pension tax reform was floated by former chancellor Sajid Javid, raising £11bn by limiting relief to 20%. But as Johnson promised a tax cut, not a tax rise, for those earning over £50,000, that looks dead. A lesser snip, the IFS hints, could be abolishing the 25% tax-free lump sum taken from pensions. Will the government dare touch inheritance tax loopholes, especially the pension pots that escape death duties? Will it end the fuel-tax freeze, now that’s under fire from the motoring lobby?
Here’s an easy test. So-called entrepreneurs’ relief is a capital-gains fiddle gifting just 5,000 rich company owners £350,000 each and costing the Treasury £3bn. It doesn’t encourage new entrepreneurs. Every serious analyst mocks this scam. Yet, even here, the auguries are not good: 150 prominent business leaders have written to the chancellor warning him not to touch it, threatening that start-ups will go to Singapore instead. The Sunday Times objects, warning the chancellor in a leader that business “still has to be convinced that this government is on its side”. Or what? They’ll vote Labour?
Javid may in fact have made tax rises harder. Despite all those red kites he flew, he now tells his fellow back-benchers that he planned a 2p income tax cut. A Treasury riposte, however, says he never mentioned it.
The upshot of all this is depressing. Expect a minimalist budget, not much of anything, say Treasury briefers. In the autumn, things may be clearer, they say – with no reason why. But one very interesting kite is still, just, fluttering. The golden rule professed (though not kept) by chancellors aims to get current spending into balance with revenues, allowing borrowing only for capital investment, such as roads or rail.
This is, of course, a sham: there is no clean divide between everyday spending and investment. Borrowing to build an office block yields much less return than investing in human capital. Train someone up to degree or higher apprenticeship level, and that multiplies their productivity. What’s more, long after the office block is demolished, that trained and educated person produces future generations of educated producers.
The government suggests it may change the rules to borrow for human capital investment. Despite the orthodoxy, there is no fixed limit to what the state can borrow. Ex-chancellor George Osborne swore Britain would go bust if it lost its triple-A credit rating. He lost it, but nothing happened. His “Labour maxed out the credit card” line was highly persuasive to families well used to that fear, but a nonsense for governments borrowing over the long term at rock-bottom interest rates.
Only strong government investment can fend off today’s gathering storms and spur the austerity-stricken economy. Levelling up needs not just northern infrastructure but massive human capital investment, as the UK has one of the least educated populations among similar countries. Boris Johnson, in Churchill mode, could call for a patriotic budget to build climate defences, repair national flood damage, and prepare for the economic shocks of Brexit and coronavirus.
Rousing the national spirit, he could call on the broadest shoulders to carry the heaviest tax burden in the national interest, tapping the wealth of those barely touched by the great crash of 2008 while the rest lost out for a decade. That’s something most easily done by a Tory government. But why would it? For all the “austerity is over” promises, don’t hold your breath. Expect token hi-vis building projects, but little to fill the black hole created by the great austerity. This government is not Keynesian: the nature of the beast will still be thoroughly Tory.
• Polly Toynbee is a Guardian columnist
