Rishi Sunak works under the watchful gaze of Nigel Lawson — a portrait of Margaret Thatcher’s tax-cutting chancellor in his office acts as a daily reminder of the kind of politician Sunak would dearly like to be.
But Sunak, who presents his Spring Statement on Wednesday, holds office at a time when there is pressure on him to spend and borrow more, first on Covid-19 and now to help families struggling to meet the soaring cost of living.
Under Sunak taxes are at their highest level for 70 years. And next door there is Boris Johnson, the prime minister. “The boss always wants to spend more money,” sighed one of the chancellor’s colleagues.
Sunak is on course to be one of the biggest tax-raising chancellors in postwar UK history, with the burden of taxation predicted to rise to 36.2 per cent of GDP by 2026-27, according to the Office for Budget Responsibility.
His daunting political task, starting on Wednesday, is to find a way to help people facing a crippling cost of living crisis without undermining the fiscal discipline he believes must accompany any tax-cutting in the future.
The chancellor’s decisive response to the Covid-19 crisis in 2020, including the creation of the furlough scheme, won him massive popularity, with his approval rating in April 2020 hitting plus-43.
But as pandemic schemes wound down and Britons were left facing the bill — including April’s £12bn national insurance rise — Sunak’s approval ratings fell to minus-2 in February.
Tory activists have also shown signs of falling out of love with the chancellor. In April 2020 he enjoyed a record plus-94 rating and topped a ConservativeHome cabinet league table; today he is the 11th most popular minister, with a rating of just 38.
Sunak, who harbours leadership ambitions, knows he must start cutting taxes, but as he said in his Mais economics lecture last month, his hero Lawson brought spending under control before he started doing so. He pointed out that fans of Lawson and Thatcher were “perhaps less quick to remember, that only once the deficit was under control, did they begin cutting taxes”.
Tensions between the high-spending Johnson and Sunak were high earlier this year during the “partygate” saga over Downing Street parties held during coronavirus restrictions. The chancellor feared the prime minister was about to reverse the planned NI increase to win the support of Tory backbenchers, while he believed the rise was essential to bring the public finances under control.
“It was anything to survive,” says one senior Conservative who was close to negotiations between Sunak and Johnson at the time.
Sunak’s allies say Johnson’s “shadow whipping operation” — his closest allies charged with saving the prime minister’s job — suggested the NI rise could be reversed, but the chancellor refused.
Johnson was also furious over Sunak’s supposed lack of loyalty, notably over his slowness in giving public support at the prime minister’s moment of maximum danger during the partygate scandal.
Sunak had chosen that day to travel to Ilfracombe in north Devon. Some in Number 10 believed the chancellor was willing to undermine Johnson without having the nerve to take him on. “Rishi is basically crap at politics. He had a moment to strike and didn’t take it. He’s now seriously weakened himself,” said one Johnson ally.
The prime minister’s position is now more secure, as political attention has shifted from Downing Street parties to the tragedy unfolding in Ukraine. “The war has saved him,” said one cabinet minister.
But Johnson’s brush with political mortality earlier this year has, according to some close to Sunak, created the basis for an uneasy truce — for now — as both want the same thing.
The prime minister’s fiercest critics include those on the right who demanded lower taxes as a price for their support, and Johnson must deliver to shore up his own position. Sunak, the pretender, has the same objective.
The chancellor argues that more borrowing is not an option, given the country’s high debt levels and rising interest rates. He believes the prime minister now agrees.
“Everyone wants to see lower taxes and the PM understands that,” said one ally of Sunak. “You have to start saying ‘no’ to more spending because as Conservatives we have to start cutting taxes.”
The chancellor is resisting additional public spending in his Spring Statement — including on defence — and has instead ordered departments to find £5.5bn of efficiency savings.
Sunak will also bank as much of the “good news” as he can, including higher-than-expected growth and tax revenues that could give him a £25bn windfall this year, in the hope he can cut taxes later.
But as part of their fragile rapprochement, Sunak has agreed with Johnson on the need for a significant package of support for households facing a crisis on their cost of living.
In an ideal world, the chancellor would hold back big fiscal decisions until his autumn Budget, when the situation in Ukraine may be clearer and volatility in global markets may have stabilised. But Johnson, still weakened by partygate, wants action now. Cuts to taxation on fuel and possible changes to NI thresholds have been mooted.
Johnson’s allies insist relations with his chancellor are now good. The two men share a hope that a modicum of fiscal restraint this week will create space for tax cuts closer to the next election, due by 2024.
Prof Jonathan Portes of King’s College London predicted that Sunak could practice “austerity by stealth”, fixing public spending plans in cash terms while higher inflation helped collect more tax revenues than expected.
But one senior Tory MP predicted that the differences between Johnson and Sunak may resurface nearer the election, especially if higher gas and oil prices inflict a stagflationary shock.
“You can imagine Boris wanting to offer a big tax cut before the election, which would probably be unfunded and Rishi refuses,” the MP said. At that point, the MP added, Sunak’s days in the Treasury would be numbered.
Source: Economy - ft.com
