Rishi Sunak will be missed as Chancellor

6 July 2022

3:15 PM

6 July 2022

3:15 PM

We will never know the counterfactuals of the past few years. What if another MP had been made Chancellor when Sajid Javid resigned (the first time)? What if a green chancellor Rishi Sunak hadn’t had a pandemic to manage? While we can’t answer these questions, it’s hard to imagine any MP – certainly on the left, even on the right – taking fiscal responsibility as seriously as Sunak did when he had the permission of his party – and politicians the world over – to throw it out the window. I suspect it won’t take long for us to start missing the former Chancellor and the critical role he played in taming the Prime Minister’s spending habits.

Overseeing the public finances and financial support schemes throughout the pandemic made Sunak a household name, and also a subject of controversy, especially within right-wing circles. The furlough scheme became one of the biggest costs of the pandemic, which saw millions of Brits have their salaries paid by the state. But the market-friendly support scheme was designed both to keep the power in the hands of businesses (rather than a power-transfer to the state) and to keep unemployment as low as possible when society reopened. The furlough scheme seemed to succeed in both.

The original forecasts for peak unemployment sat at 12 per cent; the furlough scheme caps real figures at five per cent, the only factor keeping the UK out of dreaded ‘stagflation’ territory to this day.

‘It was basically all him,’ says one government official familiar with the design of the scheme. ‘And he crafted it in a matter of days.’ Britain’s furlough became an envy of neighbouring countries, with even officials in the United States frustrated that their systems didn’t allow them to copy the scheme.

But where the former Chancellor perhaps deserves most credit isn’t for what he designed, but what he saw coming. In his March Budget last year, Sunak received backlash from some Tories for raising taxes in the midst of Britain’s longest lockdown on both corporates and individuals. It seemed to make no sense: why the low-tax chancellor would hike taxes in such precarious times.

The answer was that Sunak was one of the few people in a position of power – alongside Andy Haldane, then at the Bank of England – to take the threat of inflation seriously. The tax hikes were designed to get public finances in the best order possible for when inflation and rates rose, even marginally, which would cost the government tens of billions of pounds. For this preparation, Sunak was laughed out of the room on countless occasions for taking a price spiral seriously: in retrospect, all the ingredients were there, an ugly reality Sunak was admitting to and preparing for roughly a year before other politicians and critically central bankers fell in line.

It’s rare you’ll find a Sunak critic now who was as savvy about the threat of the inflation tiger as he was. That doesn’t mean one can’t criticise some of the decisions out of the Treasury (the introduction of a windfall tax on oil and gas companies in May was a rather egregious tax grab, which I found impossible to defend).

But the principle that Sunak set out from the beginning – that everything has a price tag, spending pledges and tax cuts included – is perhaps the most fiscally responsible bit of narrative we’ve had from this government since Boris Johnson won his majority in 2019.

The lamentable National Insurance tax hike to pay for the affluent social care bills is not a product of Sunak wanting a tax hike, but of No. 10 insisting on a major, day-to-day spending commitment, which it would have been happy to up the deficit to pay for. One might argue that last September was the sweet spot for Sunak’s resignation, given his serious reluctance over this hike (hinted at in his resignation letter: ‘On those occasions where I disagreed with you privately, I have supported you publicly’). But the most recent tax hikes, and notable lack of tax cuts, have been a product of a Prime Minister more interested in spending and cake-ism than he is in free-market economics.

It’s telling that while Sunak’s resignation comes at the height of the Chris Pincher scandal, his letter is heavy on economic vision:

‘Our country is facing immense challenges. We both want a low-tax, high-growth economy, and world class public services, but this can only be responsibly delivered if we are prepared to work hard, make sacrifices and take difficult decisions.

‘I firmly believe the public are ready to hear that truth. Our people know that if something is too good to be true then it’s not true. They need to know that whilst there is a path to a better future, it is not an easy one. In preparation for our proposed joint speech on the economy next week, it has become clear to me that our approaches are fundamentally too different.’

This suggests that while Sunak was unable to defend the government’s line on Pincher, he was also struggling to deal with No. 10’s undying desire to pledge and spend more. Case-in-point: it’s only taken a few hours for Johnson to start talking about his new-found freedoms with fiscal powers; the PM is reported to have told a group of Tory MP loyalists that ‘you’re all avidly in favour of tax cuts and tonight’s events might make that a bit easier to deliver.’ In other words: the minister who kept making me fund what I spend is gone now.

Perhaps some people will praise this sentiment. But I suspect it’s a reminder that the dangerous fiscal state we’re in may worsen now that the Sunak backstop is gone.

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