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17 November 2023

Rishi Sunak’s fiscal brag

Why the Prime Minister’s claim to have fixed inflation could backfire.

By Will Dunn

I’m pleased to announce that I have achieved my goal – not for the first time – of ensuring that it is (at the time of writing) Friday, having personally overseen the diurnal transformation from Thursday and thus completing the mission I set for myself at the beginning of this week.

I’d also like to congratulate the Prime Minister, who on Wednesday achieved the pledge he made in January to halve inflation from its level at the beginning of the year (10.2 per cent). Prices rose 4.6 per cent in the year to October, as measured by the Consumer Price Index.

The problem for Rishi Sunak is, not everyone believes the drop in inflation was his doing. In a YouGov poll published yesterday, just 4 per cent of respondents believed that “a great deal” of the drop in inflation was the result of the government’s actions; more than 60 per cent said the government’s actions had little or nothing to do with disinflation.

Like those cynics who have argued that I didn’t really cause it to be Friday, these voters may feel that Sunak is simply taking credit for the passing of time. Inflation peaked at 11.1 per cent in October last year, as energy bills rose with the lifting of Ofgem’s price cap. (Liz Truss’s implementation of the Energy Price Guarantee kept this peak some distance lower than it would have been.) Inflation fell sharply this October because a year had passed since that happened – a year in which gas prices fell 31 per cent and electricity prices fell 15.6 per cent – and that rise is no longer used to calculate the price change over the past 12 months.

Looking at the poll, it’s interesting that the consensus isn’t affected much by voting preference: 55 per cent of Conservative voters said the government did little or nothing to bring inflation down. This may also suggest that the inflation blame game has backfired. Having been told by (among others) Liz Truss, Jeremy Hunt and certain newspapers and think tanks that the Bank of England failed to predict or react to inflation, voters now recognise the Bank’s role in bringing it down. The public may not have been keeping a close eye on the money supply, but after 14 consecutive hikes in the Bank’s base rate, we’ve all had an unpleasant but effective refresher course in the efficacy of monetary policy.  

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However, it’s not fair to say that Sunak did nothing to reduce inflation. It is generally accepted that decreased spending on public services and higher taxes both work to reduce aggregate demand, and Sunak and Hunt’s policies – especially the freezing of income tax thresholds, which amounts to the biggest tax hike since 1979 and to a 1.4 per cent cut in households’ disposable income.  

For that reason, I’m not sure I’d advise Sunak to go into detail on his boast. “I gave you less government for more money” doesn’t sound like the sort of thing voters will go for.

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