This week’s Spending Review will reveal a chancellor torn between a yearning to balance the books and the needs of a new era
When Rishi Sunak became chancellor of the Exchequer on 13 February, only eight cases of coronavirus had been recorded in this country. So deferential to Number 10 was he assumed to be (in contrast to his predecessor, Sajid Javid) that, at the time, the 39-year-old was nicknamed “Baby CHINO” – Chancellor-In-Name-Only.
How much has changed in the past nine months. Yesterday, 18,662 new coronavirus infections were recorded in the UK. The Covid death toll now stands at 55,024.
And Sunak, for his part, is no longer teased as anybody’s stooge. In less than a year, he has overseen a mind-bogglingly expensive economic rescue package, established his own shiny political brand, and made little secret of his irritation at the failure of his Cabinet colleagues’ public health strategy to bring the virus under control.
On Wednesday, he will deliver his first Spending Review – setting departmental budgets not for three years, as Boris Johnson had hoped, but only for 2021-22. “This will be like a situation report,” says one senior source. “But it will give you a clear idea of where Rishi thinks the road-map should be heading.”
And where is that? First, there will be reassurances that the Chancellor is not about to “deflate the Covid lifebuoy”, as the same source puts it (Sunak has already extended the furlough scheme, by which the Treasury pays 80 percent of the wages of staff who might otherwise be made redundant, until March). Not yet, anyway.
Second, there will be a mini-spending spree on schools, the police, border control, further education, rough-sleeping and a few other line items.
And third – and most important in Sunak’s mind – there will be brutal honesty about “the scale of the economic shock” that has been caused by anti-Covid restrictions, and an equally blunt indication of the “tough decisions” that lie ahead.
To which end, the chancellor will signal a pay freeze for all public sector workers outside the NHS. The commitment to spend 0.7 per cent of national income on international aid – a principal pillar of David Cameron’s Tory modernisation project – is in peril. So too is the so-called “triple lock” whereby state pensions rise by whichever is greatest of inflation, average earnings growth, or 2.5 per cent (though its future is not expected to be settled on Wednesday). And although the Spending Review is not a moment to unveil tax decisions, Sunak will leave us in little doubt that increases are coming.
Splits within politicians are often more interesting than splits within political parties. And Sunak, for all his poise and media aplomb, is a chancellor torn in two quite different directions: by ideology and ambition; by the habits of prudence and the needs of a new era; by the future and the past.
In accepting the job after Javid’s resignation, he aligned himself – at least officially – with the prime minister’s fiscal inclinations, which are to put the decade of austerity firmly behind us and invest prodigiously in transport, health care, green industry, and (it now transpires) defence. It cannot be stressed sufficiently that Johnson’s yearning to spend, spend, spend long predated the pandemic.
In his March Budget, Sunak duly pledged that £640 billion would be spent on infrastructure over the next five years, and that expenditure on public services would increase by £100 billion in cash terms by the end of this parliament. This, he said 26 times, was a government that “gets things done”.
Well, up to a point. The Covid crisis has disclosed a bleak inventory of systemic failure: the flaccid attempt to secure sufficient PPE for front-line health workers; the shambles of the test-and-trace strategy; the scandal of coronavirus infections in care homes; epic dysfunction in Number 10; and much else besides.
Sunak’s record during the emergency has not been without blemish. The Coronavirus Business Interruption Loan Scheme (CBILS) has scarcely worked as it should have; he was slow to deal with the plight of the self-employed; he has not always appreciated the need to protect certain sectors as quickly as he should.
In general, however, he has escaped the public pummelling to which Johnson and Matt Hancock, the health secretary, have been subjected, especially since the second wave of the virus struck and national lockdown measures were restored.
What worries Sunak more than the prospect of unpopularity is the prospect of failure, and failure – crucially – as he defines it. As is clear from Michael Ashcroft’s new biography, Going for Broke, Sunak may be Johnson’s chancellor but he is a fiscal conservative to his finger-tips – which is to say, he believes, as a first principle, that a nation should seek to spend no more than it earns.
In a Budget debate in July 2015, only two months after his election as MP for Richmond (in succession to William Hague), he declared that “in normal times, public spending should not exceed 37 per cent of GDP”. His background as a Stanford MBA and employee of Goldman Sachs has ingrained in him an unrelenting sensitivity to the markets, and a fear of what might happen to an unduly indebted UK plc in years to come.
His quip about the PM in this weekend’s Sunday Times – “I should take his credit card away” – perfectly illustrated the Freudian maxim that a joke is truth wrapped in a smile.
Though a committed (and early) champion of Brexit, Sunak is not a true disciple of Johnson or the recently departed Dominic Cummings. He believes in “levelling up”, but not at any price. In this sense, his fiscal instincts owe much more to the Cameron-Osborne era than to the new age of Boris Bounty.
Hence his determination to freeze public sector pay. As he told Sky’s Sophy Ridge yesterday: “When we launched the Spending Review, I did say to departments that when we think about settlements it would be entirely reasonable to think about those in the context of the wider economic climate…. Secondly, I think it would be fair to also think about what’s happening with wages, with jobs, with hours across the economy, when we think about what the right thing to do in the public sector is.”
To decode: my Cabinet colleagues are going to have to make cuts whether they like it or not; and public sector employees have enjoyed much greater protections during the pandemic than their private sector counterparts, and cannot expect special treatment.
This illustrates perfectly the difference between logic and common sense. In fact, it is politically callow. Sunak may be technically right about the greater security enjoyed by those who work for the state. But he might reflect that he will be delivering his speech before the end of lockdown, in the middle of a punishing second wave of the virus, at a time of national bereavement and soaring mental health problems, and exactly a month before Christmas.
Is this really the moment to be getting tough on teaching assistants paid £16,000 a year? Or the million or so public sector workers who earn less than the living wage? Sunak is right to think about the state of the public finances as a matter of urgency, but he should think about the state of the nation first. Politics is not a branch of economics, and no chancellor who believes otherwise is worthy of the top job.
More to the point: Sunak presents himself as the very incarnation of modernity, effective yet relaxed, fun yet professional, a hoodie-wearing Conservative who loves Star Wars and Emily in Paris.
But these are the trappings of modernity, rather than its essence – which is always changing. And Sunak’s predicament symbolises a deep fissure in the Conservative psyche about its future trajectory and its identity. Specifically, there is a dawning recognition among thinking Tories that the 21st Century will offer fewer and fewer opportunities to roll back the frontiers of the state.
Climate emergency; the prospect that something like a universal basic income may be needed to compensate for the impact upon employment of automation and the insecurities of the labour market; the growing health, social care and retraining needs of an ageing population: there will be market-based solutions for some of these challenges. But it is idle to deny that we are entering an age in which we shall need more government, not less.
This is a hugely challenging prospect for Conservatives reared on Thatcherism, elected during the austerity years, and – to varying degrees – persuaded that the state is a necessary evil rather than an expression of social solidarity and resilience. For this tribe, the pandemic has been a ferocious psychic jolt.
In the past few weeks, three Conservative MPs have separately mentioned to me The Deficit Myth by Stephanie Kelton, former chief economist on the US Senate Budget Committee, which systematically attacks the very foundations of fiscal conservatism. I have no idea whether these troubled Tories have actually read the book. What interests me is that they should be talking about it at all.
Sunak stands at the very centre of this debate, the product of one era tasked with steering the economy into another. He personifies the strains within a hitherto-robust party orthodoxy that has yet to be replaced by a coherent alternative, other than: keep on spending, Rishi.
The tension is fundamental to the future of Conservative statecraft. On Wednesday, we shall see how close the Chancellor is to resolving it.