You could call today’s Spring Statement a Tale of Two Sunaks: of the tax-cutting chancellor he desperately wants to be and the penny-pinching, fiscally-responsible Chancellor he privately is.
He had a honeymoon period as the most popular politician in the country, but his reputation among Tory MPs has suffered in recent months. He is on the unpopular side of two Conservative interpretations of how to manage the economy after the massive spending necessitated by the pandemic: low-tax Conservatism or balanced-books Conservatism. In good times it is possible to be both, and that is where Sunak hopes to be by the time of the next general election. But in the past couple of years he has been forced to choose, and he has chosen the latter, pushing ahead with a planned increase in National Insurance to address the dramatic government borrowing during the pandemic. It has made him deeply unpopular among Tories, as well as exposing him to jibes from Labour that he is a high-tax, low-growth Chancellor.
Today was about salvaging his reputation as a low-tax Chancellor, with a statement peppered with tax cuts that belie the reality that the UK is still facing the highest tax burden in 70 years. The biggest cut was the increase in the National Insurance threshold from £9,600 to £12,570, a messy measure to undo some of the impact of an increase in the tax coming next month without the political embarrassment — or cost to the Exchequer — of a U-turn. He lauded it as “a tax cut that rewards work”, but it is a half-measure to mitigate the impact on the lowest earners of a tax rise that he is still going ahead with.
But the most striking thing about the statement was Sunak’s announcement, years ahead of time, that he intends to cut the basic rate of income tax from 20 per cent to 19 per cent in 2024, conveniently just before the next general election. It had been widely expected that the Chancellor would act; the surprise is that he announced the move now, years early, in an attempt to shore up his credibility. It is a somewhat premature “rabbit out of the hat” to please Tory backbenchers but the Office for Budget Responsibility has confirmed that the Chancellor is only reversing a sixth of the tax rises he’s announced since he took the job. The low-tax rhetoric is contradicted by the high-tax reality.
Lost in all of this, of course, is the stark reality for ordinary people who are facing the largest fall in disposable income since the 1950s. The measures Sunak announced — that NI threshold increase, a cut in fuel duty, a cursory amount of targeted support for vulnerable households — have been welcomed, but the criticism is that they will barely touch the edges of the crisis we are heading into.
Sunak is preparing for the next election, for a time when he can slash taxes as well as being satisfied that he is balancing the books. The question is what will happen to ordinary families in the meantime, and whether a statement with an eye on Tory backbenchers rather than the country will manage to satisfy either.