Rishi Sunak has released photos of his Budget prep, as he prepares to stand up in the House of Commons tomorrow to deliver not just the government’s latest fiscal decisions, but the results of its three-year spending review. (Photos include a shot of his pre-Budget Twix and Sprite snack, which Sunak revealed to Katy Balls on Times Radio over the weekend).
As I say in the Telegraph today, this Budget is a difficult balancing act for the Chancellor. On the one hand, he has some big-spenders to please, not least the Prime Minister, who is adamant that the Conservative party’s days of austerity have come to an end. On the other, Sunak remains committed to ushering in a new phase of fiscal responsibility, which does away with the idea that emergency spending can continue forever.
Heading into the Budget tomorrow, the public finances are in a much better state than previously predicted by the Office for Budget Responsibility. Borrowing is over £40 billion below estimates, and the Institute for Fiscal Studies estimates that the Chancellor could have a £50 billion borrowing windfall, giving him much more room to manoeuvre, or even indulge Boris Johnson’s high-spending tendencies.
But don’t expect the Chancellor to use it all up. From Sunak’s perspective, this isn’t found money — rather, its scope to borrow more in other areas, if absolutely necessary. The finances are still on track for the third-highest deficit in real terms since world war two. This is not a time to encourage more spending, but to be grateful that the situation is slightly less dire than once expected.
Still, we are set for some spending announcements: £6 billion more to help with the NHS backlog, £7 billion for local infrastructure projects linked to the 'levelling up' agenda, and a £3 billion investment into the Lifetime Skills Guarantee, to name a few. But the emphasis will be on capital spending rather than increasing day-to-day spending, which the Chancellor is increasingly insistent must be costed and paid for — even if that means tax rises. He doesn’t like those either, telling Andrew Marr over the weekend that his ‘instincts are to [cut taxes]’ — that’s just not a possibility right now.
Or is it? It’s rumoured that any rabbit out of a hat tomorrow will be centred around Britain's looming cost of living crisis, brought about by a global gas shortage and rising inflation, with whispers circulating around VAT. But any lip-service, or policy action, paid to energy bills must also be couched carefully, since Johnson repeatedly insisted that a crisis is not on the horizon, and more generally that supply shortages have their benefits, including upward pressures on wages.
It’s these pressures that Sunak will also be using his Budget to address: the risks of rising inflation and what that could mean for servicing the debt. Here, Sunak’s best option is similar to what he faced in March: to make sure he’s accounted for the money that might need to be found overnight if inflation and rates all rise. In this sense, it will be a Budget that starts to pivot to more sustainable fiscal footing, but also one that does its best to prepare for circumstances out of the Chancellor’s control.
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