The new era of austerity

It’s the Chancellor who will deliver next week’s Autumn Statement, but every-one knows it will have been ghost-written by Rishi Sunak. When Jeremy Hunt ran for party leader, his own proposal was to take corporation tax from 19 per cent to 15 per cent. Now, he wishes to raise it to 25 per cent. When Hunt speaks next week, we should imagine Sunak’s voice.

Liz Truss spooked the markets by combining unexpected tax cuts with a spending splurge bigger than Sunak’s furlough scheme: a £10 billion-a-month subsidy on energy prices, going even to the richest. This was a shock, sprung on markets at a time when interest rates were rising globally. About two-thirds of the interest rate rises that emerged under Truss would probably have happened anyway, but politically this is irrelevant. Her timing was so spectacularly bad that she – and the Tories – will now be blamed for all of it.

Kwasi Kwarteng imagined that high borrowing would stimulate the economy and do it so effectively that the problem of debt would diminish. In this respect Kwarteng and his opposite number, Rachel Reeves, had similar ideas; it is the Labour approach to borrowing.

It is not in Sunak’s power, or anyone else’s, to bring back the old era of dirt-cheaploans. His mission will be to adapt to a harsh new reality. Governments once again need to balance their books. The Chancellor has already signalled what to expect: tax rises and spending cuts. Unless he has been misleading us, his Autumn Statement next week will mark not just a reversal of Truss’s economic policy but a rejection of Boris Johnson’s too. ‘Cakeism’ will give way to gruel. Austerity is back. Many on both the Labour and Tory benches will be appalled by the idea of significant austerity, which some expect to be the most severe since 1970.