At first sight, the Chancellor Rishi Sunak’s political influences might appear obvious. His declaration that the Conservatives have “a sacred responsibility” to balance the books is redolent of the austere rhetoric deployed by George Osborne. Sunak’s hero is said to be Nigel Lawson, the Thatcher-era chancellor of the Exchequer who reduced the top rate of income tax from 83 per cent to 40 per cent.
But study Sunak’s recent policy announcements and a less likely (and unacknowledged) influence emerges: John McDonnell, Labour’s former shadow chancellor. The Chancellor’s plan to raise corporation tax from 19 per cent to 25 per cent by the end of the parliament in 2024 recalls Labour’s 2019 manifesto pledge to increase the headline rate to 26 per cent. Sunak is also said to be considering aligning tax rates on capital gains (10 per cent to 28 per cent) with those on income (20 per cent to 45 per cent), another policy proposed by Labour before the last election. The motives are, of course, different: Sunak is focused on raising revenue to reduce government borrowing, not redistributing wealth. But the crossover is still striking.
And this is far from an isolated incident. In his first Budget last March, Sunak announced the creation of a Treasury headquarters in the north of England, a promise that McDonnell reasonably pointed out he had made the previous year (“We’re going to break up No 11. Part of No 11 is going to the north.”) The then shadow chancellor quipped last March: “If they’re going to plagiarise they could have the decency of properly attributing the idea to Labour.”
More recently, in the Spending Review last November, Sunak announced the creation of a national infrastructure bank, a policy reminiscent of the national investment bank promised by McDonnell (and by Ed Miliband’s Labour). The Chancellor also vowed to rewrite the Treasury investment rules that favour London over the north through their narrow definition of benefits relative to costs. And once again, McDonnell could boast that he had been first. “We will end the Treasury bias against investing in the regions and nations,” he said in his 2018 Labour conference speech. “And we’ll make sure it assesses spending decisions against the need to tackle climate change, protect our environment, drive up productivity and meet the investment challenges of the fourth industrial revolution.”
What does Sunak’s McDonnell tribute act reveal? It confirms that the parameters of economic debate have shifted leftwards – a reflection of voter weariness with austerity, the statist intervention necessitated by Covid-19 and climate change, the Leave campaign’s embrace of higher public spending and the enduring influence of Corbynism.
As chancellor, Osborne cut corporation tax from 28 per cent in 2010 to 20 per cent and pursued an absolute budget surplus. But Sunak is raising tax while borrowing to invest to a degree that Osborne never did. As James Meadway, McDonnell’s former economic adviser, has written in the New Statesman, there is an emerging “Red-Green Toryism” – “a reinvigorated, economically interventionist and environmentally tinged Conservatism”.
The degree of change should not be overstated. Sunak has also borrowed from Osborne by freezing the pay of 2.6 million public-sector workers (despite the average public-sector worker earning 1.5 per cent less in real-terms than in 2010) and cutting £10bn from planned departmental spending. But for Labour, the Chancellor’s partial embrace of McDonnellism is one measure of the new political challenge it faces.