Rishi Sunak’s spring statement opened by summoning the power of free societies and open markets, as a counterpoint to Russian aggression in Ukraine. “What the authoritarian mind perceives as division, we know are the passionate disagreements at the heart of our living, breathing democracy,” he said.
It was a Thatcherite rhetorical flourish aimed at stirring his supporters on the Conservative backbenches, but also framed the statement as a response to the war, which Sunak said had made the UK’s economy more fragile and underlined the need for “security” at home.
The Office for Budget Responsibility (OBR) is now forecasting the steepest one-year decline in living standards since records began in the 1950s. So perhaps it should not be surprising that Sunak appeared keen to paint the hardship ahead as a contribution to the war effort rather than the result of deliberate political choices.
He didn’t quite say the privations to be faced by the British public over the next 12 months were a price worth paying (Kwasi Kwarteng almost went there last week, saying the public were prepared for “sacrifices”). But he was sending a clear signal to voters that when they open up next month’s energy bill, or wince as they get to the supermarket till and see how much their shopping costs, they should put the blame on an international crisis, not on the government.
Labour believes that won’t wash with a public who were already feeling the impact of rocketing inflation – and Conservative policies, including the cut to universal credit – even before the tanks rolled across the Ukrainian border.
There was another political sleight of hand at the heart of Sunak’s statement, too. With great fanfare, he highlighted the announcement that the threshold for national insurance contributions (NICs) would rise by a chunky £3,000 next month, and income tax would be cut by 1p in 2024, calling it “the biggest net cut to personal taxes in over a quarter of a century”.
He was not willing to let his ambition to cut the basic rate of income tax “wither and drift”, he said, and while he couldn’t justify it this year, he would press ahead with it in two years’ time.
The increase in the NICs threshold was welcomed by experts such as the Institute for Fiscal Studies’ Paul Johnson as a sensible simplification, as well as a tax cut, bringing national insurance in line with income tax.
Yet, as the OBR pointed out, these much-vaunted tax cuts only reverse one-sixth of the tax increases the Johnson government has announced.
This has been a pattern with Sunak: his NICs cut helps soften the blow of a measure he brought in himself in the autumn – the health and social care levy – just as the cut in the universal credit taper rate he introduced in the budget partly offset the reversal of the £20-a-week Covid uplift he had pushed through.
He is evidently banking on a pat on the back from voters at the next general election for cutting their taxes, even when he has, in fact, increased them.
The shadow chancellor, Rachel Reeves, tried to capture the absurdity of this position with an extended Alice in Wonderland metaphor; the Liberal Democrats’ leader, Ed Davey, called it the “Sunak swindle”. But Tory backbenchers were overjoyed.
And of course, those backbenchers will form the electorate for the first round of any leadership contest that might take place in the not-too-distant future.
Sunak insisted on the NICs increase as a quid pro quo for funding the prime minister’s plan to cap social care costs, but it was loathed by many of his colleagues and further dented his credentials as a Thatcherite small-state tax cutter.
The Treasury’s new tax plan, announced alongside the statement, says that from now on tax cuts, not more public spending, will be the first priority – and tackling the deficit is back in vogue. George Osborne hailed it as putting “Tory economics back on track”.
It remains to be seen how well the plan sits with Sunak’s neighbour in No 10, who loathed the very idea of austerity, loves grands projects and tends to want to reach for the spending taps.
And it is unclear, too, whether voters promised “levelling up” – only mentioned once by Sunak, in passing – will hail the government for handing them a tax cut after two years that, judging by the OBR’s forecasts, look very grim indeed.
