There is one big reason why a summer general election is unlikely, however tempted the Prime Minister might be to try to take advantage of the first migrant flight to Rwanda. Read between the lines and it is clear that Rishi Sunak and Jeremy Hunt want to hold another ‘fiscal event’ before going to the polls. Nibbling away at a few more taxes, they appear to believe, will give them the best chance of clinging to power, or at least limiting the electoral damage to the Conservatives.
They must be hoping that few people will notice the public borrowing figures. This morning it was revealed that last month the government was forced to borrow £11.9 billion, substantially ahead of forecasts and taking the public borrowing for the full year 2023-24 to £120.7 billion – £6 billion ahead of what the Office for Budgetary Responsibility forecast ahead of last month’s Budget.
This Conservative government was first elected in 2010 (then with the Lib Dems in coalition) on the back of a promise to restore the public finances. It is almost certainly going to leave office having failed miserably to achieve that. In 2010, the then chancellor, George Osborne, unveiled a programme to bring the public finances back into balance within five years with an '80-20' rule – it was to be achieved 80 per cent through spending cuts and 20 per cent through tax rises. Already by the time Osborne left office the target had slipped, and continued to slip until it disappeared altogether.
What makes Hunt and Sunak think that is a winning formula?
So, too, did any talk of spending cuts after Osborne’s successor, Philip Hammond, declared an end to ‘austerity’. Then, came Boris Johnson and Covid, during which spending exploded. We were back to where we were in Gordon Brown’s day. In spite of debt ballooning to the point where the government is spending £100 billion a year servicing its debts, spending cuts have almost completely disappeared off the political radar. Tax cuts, however, are very much now on the menu.
What makes Hunt and Sunak think that is a winning formula? They seem to think that voters are too stupid to work out that their tax cuts are being bought with higher borrowing. Yet modern electoral history suggests very much the opposite.
Between 2010 and 2015, Ed Miliband was convinced that the Conservatives could be tripped up on ‘austerity’ policies. Yet an internal Labour report by Jon Cruddas after the 2015 election concluded that the Conservatives had won not in spite of austerity but because of it: voters actually liked the idea of a balanced budget and were offended by the idea of more borrowing.
That was evident again after Liz Truss and Kwasi Kwarteng’s disastrous mini budget in September 2022, when they offered tax cuts combined with spending rises. The Conservatives’ poll ratings dived and have never recovered.
Purveyors of Modern Monetary Theory like to advance the idea that national economies are not like household budgets. They push Keynes’ ‘paradox of thrift’ which argued that a government which cuts spending can make its fiscal life more difficult by constraining the economy and tax revenues along with it. The trouble is that, even if it were true (and Keynes never advocated carrying structural debts from one economic cycle to another), most voters are more familiar with managing household budgets than government ones. It should come as no surprise then that people tend to think dimly of political parties which offer tax cuts without spending cuts. It is a lesson that Sunak and Hunt will learn later this year. Indeed, a giveaway fiscal event may well make their situation even more hopeless.
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