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Friday 13 March 2020

Primary Sources

The Stupidest Budget of All Time

Welcome to the Rishi Sunak Cinematic Universe – a fantastic place where the present is under risk and the future is made up

By Chris Cook

Every time the chancellor of the exchequer, Britain’s absurdly titled finance minister, stands up to give one of his (always his) Budgets, it should make you deeply bearish about Britain. It is a ridiculous process: the minister stands up, reads out a partial list of measures and a misleading account of them and then opposition parties respond without being allowed to read the documents. The whole thing is a scramble for column inches, largely written by political journalists who, themselves, do not have time to check any of it.

This dismal process is one reason why the UK is poorly run. It encourages short-termism: there is a premium on surprise measures – “rabbits from hats” – and a political penalty for calm consultation. Even so, this may have been the stupidest Budget of all time.

First, and most importantly, they gathered more than 600 legislators into a small room, with a few hundred onlookers above, during a global pandemic.

Second, because if you pay attention to the “red book”, the annual budget report, more or less everything in it was a fiction, based in a hypothetical universe that we all know will never be.

The maths of the budget is rooted in the Office for Budget Responsibility’s forecasts from nearly a month ago. Even then, they anticipated a miserable few years ahead, with the Brexit penalty on growth weighing on the country for the coming years and, at that time, a slight weakening of export numbers because of the Covid-19 threat. Even before the virus, they expected misery.

There are some things you can see, which might survive the coronavirus. Even before the crisis, the government was intending to increase borrowing. There is a shift away from the fiscal frameworks of the past ten years. Partly this reflects that, with the fiscal deficit now back to “normal” levels, you can borrow more because we borrow little now.

This was going to allow a rise in day-to-day running costs (so-called “current” spending) and spending on new stuff (so-called “capital” spending).

There has been a lot of focus on the politics of propping up the “red wall” – winning over those parts of the North that voted Tory in December 2019 with goodies such as infrastructure spending.

It is not clear how much of this is nonsense. Certainly, we can see, they’ve inked in a large rise in net investment over the next few years, including £27bn for “strategic roads”. But whether this will be delivered to widen roads in key marginals is not yet clear. Investment in infrastructure is not easy to deliver fast, even when it’s done for good reasons. Delivering fast according to political priorities may be even harder.

So, despite more borrowing, this is a Budget that, in principle, will stay within the government’s old fiscal rules. The most important of these is that, in three years time, all day-to-day spending should be paid for out of day-to-day revenue. So the money you borrow is only to cover “investment” in new things.

You can see that we meet this target now in the target fiscal year, 2022-23.

While this Budget envisages meeting this rule in this nonsense future, it is – even in the Rishi Sunak Cinematic Universe – a paper invention. Even before you consider the pandemic, the Treasury only intends to hit that rule with £11.7bn to spare. That may sound a lot, but according to the Resolution Foundation, the average error on forecasting this deficit from 3 years out is £29bn.

In any case, we also know the Budget is pointlessly bullish about how much revenue it will raise. For example, it assumes that we will get another £3bn from fuel duty by 2023, as it assumes that we will raise fuel duty in line with inflation. But every Budget always assumes that. And, as political pressure mounts on chancellors ahead of Budget day, it never comes.

We should really read this as the government “maybe thinking about” meeting the rules. For now, anyway. They are being reviewed in the autumn – when, perhaps with cover from a global slowdown, they will be able to be discarded.

This, however, is a Budget where the most important graph of all is going to be one that ministers may not really have noticed: current departmental spending by the government since 2010 per person. This is, in effect, spending on day-to-day services. And it has been hammered for years.

The state has systematically tried to get leaner and leaner. Take the English NHS. The number of patients’ “first attendances” seen in the first quarter of 2010 was 4.2m. In the last quarter, it was 5.1m. But, over the same period, the total number of English NHS hospital beds has decreased from 144,455 to 127,589. This represents some serious efficiency gains.

But it means that the system has absolutely no capacity left. The whole system is creaking: English hospitals are supposed to deal with 95 per cent of emergency patients within four hours of their arriving. At big hospitals, that total stands at about 70 per cent.

The Budget included a “£5 billion COVID-19 response fund to ensure the NHS and other public services receive the funding they need to respond to the outbreak as the situation develops, and recover and return to normal afterwards”. But, if the pandemic is as harmful as now feared, “returning to normal” may look negligent.

After years of squeezes, 12 per cent of hospital posts for nurses stand empty. Social care has a horrifying turnover problem: 39 per cent of all staff started their roles in the last year.

The package to support the economy through the coming months – and to make sure people can afford to self-isolate – deserves a nod as a start. It is a start: the economic impact of the virus might be lessened in important ways.

But the central fact of this Budget may be that the chancellor’s decisions to seek to mitigate the pandemic are overshadowed by ten years of decisions to cut any spare capacity within the state.

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