The Treasury thinks it has a new friend: the Office for Budget Responsibility (OBR). During the delivery of his first Budget this afternoon, Chancellor Rishi Sunak referenced the economic forecaster multiple times, relying on its assessment of the Budget as proof that the ‘largest giveaway since 1992’ is still fiscally responsible. The OBR has ‘made an estimate they’ve never made before,’ boasted Sunak. ‘If future Governments have the same determination to continue our approach’ – by this he means more public spending – ‘the UK’s long-term productivity will increase by 2.5 per cent.’
But that’s a big ‘if’, even according to the Chancellor’s new friend. At the OBR’s post-Budget briefing today, chairman Robert Chote stressed how ‘little’ of this boost will show up in the 5-year horizon: ‘a lot (will) depend”, he said “on what this money actually gets spent on. Does it end up being spent on stuff that is actually going to have lasting improvements on potential GDP?”
Given its fervent commitment to projects like HS2, it’s not remotely clear that the Government is prepared to spend as efficiently as it might need to leverage its stimulus package. And even if it were to pull off an efficiency-miracle, there’s no guarantee future Governments will follow in this one’s borrowing footsteps.
In this sense, the Government has taken a huge gamble with their economic strategy; risking its reputation as well as its ability to boost growth, by placing all their bets on spending. Despite campaigning during the 2019 election on tax cuts and a market-based agenda, this Budget revealed – as things stand – that the next five years will deliver net tax increases, on top of a 46-year high tax burden.
Even by removing any and all impact of coronavirus on the UK economy, the growth forecast looks bleak – hovering around an average of 1.5 per cent over the next five-years. A country which has taken so long to recover from the 2008 financial crash (wages returned to pre-crash levels just weeks ago), is unlikely to be tolerant of another half-decade of stagnation. This Government isn’t adopting normal Tory measures to address this, but are taking inspiration from Labour’s playbook, producing a Budget baring a closer resemblance to a Gordon Brown Budget than any of Boris Johnson’s recent Conservative predecessors.
The Government’s borrowing plans are estimated to take the UK into over £2trillion worth of debt around the time of the next election. This is unprecedented debt, racked up in unprecedented times, as a global pandemic layers on top of economic uncertainty. This Government is betting it can spend its way to growth – whether it’s right or now will be assessed down the road – but it’s safe to say that the Tory party is operating with a brand new economic tool kit.