Rishi Sunak’s planned corporation tax hike is a reminder of the importance he sets by trying to put the public finances on a sounder footing. He think that his room for manoeuvre in this crisis has been, in part, because the public finances were in reasonable shape before it.
As I say in the magazine this week, his concern about debt has long been about the cost of servicing it (which remains low) rather than its precise level. But the debt pile is now so large that small movements in interest rates have big consequences.
But straightening out the public finances will need growth. Tax rises will be tricky given the Tory manifesto pledge not to raise income tax, National Insurance or VAT. Spending cuts are hard too given the sheer number of commitments that the Tories have made. Far more impressive growth than we have seen in recent years will be required to make the public finances more sustainable. Given there is no room for tax cuts, changes to regulations could do the most good. The government must push on, despite concerns on the Tory benches, with a zonal planning system which is by far its most significant supply-side reform.
If it were not for the pandemic, this Budget would be judged as the first since Britain left the single market and the customs union. While there was a sign of how the government intends to use these newfound freedoms in the announcement of a batch of free ports, this was ultimately another Covid Budget.
The vaccination programme remains this government’s most important economic policy since it’s the way the country will eventually return to normal. There are also wider lessons to learn from its success. The vaccine rollout was possible because of innovation and fast-moving regulators. The same combination could help generate the growth needed to make the public finances sustainable in the long term.