The chancellor, Jeremy Hunt, wants to fight the last war. But fearmongering claims about record debts that worked for previous Tory chancellors, when voters could be scared into voting for austerity, are less persuasive at a time of recession. Next year, unemployment will jump as the economy shrinks by 1.4%. Households will record the biggest fall in disposable income since records began, and it won’t return to pre-pandemic levels until after 2028. Rents, energy bills and mortgages are all going up while house prices and real wages drop.
It is easy to see why Mr Hunt thinks that as long as the issue is controlling inflation or reducing debt, rather than the failure of Tory economic management, it may be that the government has a chance to prosper. He knows that elections are fought not between conflicting answers to the same question, but rather between conflicting questions.
Yet Labour is not offering any competition for people’s thinking. This has allowed Mr Hunt’s autumn statement to be dressed up in Labour clothes. The plan for higher taxes on wages and dividends as well as an extended windfall tax on oil and gas companies is about political positioning. Mr Hunt will do the bare minimum to shelter pensioners, the poor and politically sensitive services because public opinion has shifted against spending cuts. But he thinks some unpopular choices can be politically useful. That is why he admitted Britain could not meet the government’s fiscal rules and replaced them with new self-imposed constraints that require £55bn in cuts after 2025.
Under Mr Hunt’s new fiscal strategy, austerity won’t arrive until after the end of the current parliamentary term. This is a trap. A failure by Labour to sign up to tough fiscal policies will expose, the chancellor hopes, a deficit of common sense. Yet most of the belt-tightening is due to higher debt interest costs – in effect forcing Britain to spend a larger share of its budget paying bondholders. This is not a flaw but a feature of Sunakomics. It was Rishi Sunak who as chancellor embraced selling inflation-linked national debt when there was no need.
While energy firms rightly face a windfall tax, the bank levy is wrongly being cut from 8% to 3%. Yet lenders are now receiving 3% on the reserves – up from 0.1% last year – that they have parked at the Bank of England since 2009. This, reckons the Office for Budget Responsibility (OBR), costs the Treasury about £60bn. Mr Hunt has chosen to look for public spending cuts instead of taxing banks or forcing them to hold reserves at the Bank at a lower – or zero – rate.
The Conservatives have very deliberately and radically changed the structure of the British economy to favour their interests. Campaigners warn that replacing the Solvency II insurance regime that was adopted when Britain was in the EU is likely to weaken consumer protections and provide a windfall for City shareholders. A national ambition to reduce energy consumption by 15% by 2030 is too little too late when fossil fuels are behind raging inflation. Mr Hunt’s claim that Britain has one of the strongest safety nets in the world is belied by shrivelled benefits. While schools and the NHS are shielded, other departments face brutal spending cuts.
For all the talk of turbocharging the economy, the only growth boost the OBR noted was higher immigration. Brexit was mentioned once by Mr Hunt – a testament to that policy’s growing unpopularity. Labour needs its own analysis of the British economy. It is not enough just to say the party in power is useless or irresponsible. The Conservatives’ grim record has not prevented them from winning elections – with dismal results for the country.