The author chairs the FT’s Nominating and Oversight Committee
“When winter comes, can spring be far behind?” asked shelly. Chancellor Rishi Sunak must feel that the question is not just rhetorical. What he has to say on Wednesday can be described as that spring declaration but he will strive to give hope to the country as we head into the sunny post Covid highlands. The architect of Eat Out to Help Out may have briefly cheered the nation up with discounted meals — though he likely helped spread the virus in the process — but the economy has been plunged into war by a pandemic, and he has little leeway.
But calls for higher spending continue to mount. The last is understandably for defense; only the most ardent pacifist would now argue against the need to rebuild our armed forces. The NHS is insatiable when it comes to delivering on its boundless promises, and the extra money being pledged for welfare is instead destined to go into funding this giant. The infrastructure, which is an integral part of the much-vaunted leveling-up agenda, won’t come cheap. The cries for help with rising fuel costs have already reached a shrill volume. At the same time, the number of people who need financial help to feed their families is growing.
Imagine if the chancellor decides to say openly that it is impossible to meet all these demands. He could choose to be honest with the country and say that coping with Covid has pushed government lending to record levels; that although the economic recovery boosted tax revenues, rising interest rates meant that accrued interest payments on government debt had reached new highs. We’re sorry, but we’ll all have to endure the pain of rising energy bills, rising food prices, and poorly funded public services — unless we want to pay more for it.
It seems Sunak has been trying to get that message across to his cabinet mates, but it’s not what they want to hear – and it’s certainly not what they want voters to say. He has been campaigning against those who want him to step up last month’s measures to cushion the majority of the population against some of the huge surge in energy prices, arguing he wants to see where they settle in the autumn. He also resists calls to drop the ninsurance surchargealthough it is set to kick in next month, just as workers are about to feel the effects of rising inflation and higher interest rates.
But he’ll feel obligated to offer a few goodies — barring some upbeat comments on the jobs numbers — and we can expect him to make great use of the fact that borrowing is actually not quite as bad as forecast. And while current conservative ideology loathes any proposal for income tax hikes, last year’s decision to freeze thresholds for four years, coupled with wage inflation, could net the Treasury as much as an extra £12.5 billion a year which Sunak might redistribute.
The most effective way would probably be to increase the benefits increase, which is due to take effect in April. This is only touted 3.1 percent, a paltry number compared to inflation, which is now expected to reach at least 8 percent this year. The Joseph Rowntree Foundation estimates there will be at least 9 million families £500 a year worse off as a result and that will be tantamount to real pain.
Sunak might also acknowledge that not all retirees live at subsistence level. There is absolutely no reason why older workers should not pay full national insurance contributions. You now have to pay the additional medical fee, but there is no reason to exclude it from the total. While Sunak rakes in some extra cash, he should also change how private equity funds are taxed so that what is actually income is no longer taxed as capital gains. The sums are small, but the message is big: we really want to be a fairer society. A commitment to improve public procurement would be welcome, especially after the PPE fiasco.
We also need to be a more productive society. The CBI employers’ association and others are pushing for more tax breaks to encourage business investment, and it’s true that capital investment lags behind other developing countries, as does our gross domestic product. However, stimulus is not what is really holding back UK productivity: bad management is the problem. That was the conclusion reached by the commission, headed by former John Lewis chairman Sir Charlie Mayfield, and it was correct.
The CBI is pushing Sunak for 100 percent tax deductions on capital expenditures, but for many companies, sensible investments shouldn’t require large tax incentives. It takes strong management to make bold decisions.
And it takes courageous politicians to tell the hard truth: tax rates will have to rise one way or another
https://www.ft.com/content/967a15e7-a85a-4815-b447-678ed54c2cde Rishi Sunak could choose to be honest with voters – but he won’t