When Rishi Sunak delivered his five key pledges at the start of January, the latest data we had for the inflation rate was for last November. It was up 10.7 per cent on the year, having fallen from a peak of 11.1 per cent the month before. Everyone thought this was the start of a fast and spectacular fall, with virtually all forecasts showing a welcome decline in the rate of inflation.
Off the back of those forecasts, the Prime Minister oozed confidence when he promised to ‘halve inflation’ by the end of this year. Speaking to an audience in Stratford, Sunak promised that an ‘ease’ to the cost-of-living crisis and greater ‘financial security’ was on its way. His Chancellor, Jeremy Hunt, then took that promise and ran with it – going so far as to make a video for social media, using coffee cups as props to explain how the government was going to force the rate of inflation down.
There was one problem, however. Tackling the rate of inflation was never the government’s gift to deliver. Inflation tends to be a monetary phenomenon, and the Bank of England has control of the tools that are most effective when prices start to soar (i.e. interest rates). Sunak knows this. He got rave reviews from civil servants (a rarity in the chaotic Johnson era) when he served as chancellor: the most common feedback was that he understood economic laws better than almost anyone else in the Treasury.
But the opportunity seemed too good to pass up. If the rate is going to plummet anyway, why not take the political credit? It would take several more months to discover that when Sunak first delivered his five pledges, the rate of inflation was not nose-diving. In fact, in January this year it was still in the double-digits, up 10.1 per cent on the year. Our last set of data, from March, sticks at the same rate.
When Sunak delivered his pledges, they were received as rather thin proposals, bar one. Promises to ‘halve inflation’, ‘grow the economy’, ‘make sure the national debt is falling’, and oversee a ‘fall’ in NHS waiting lists all seemed like bare minimum the government should be aiming to deliver. If these vague and rather unambitious targets couldn’t be met, something was even more rotten in the state of Whitehall than was already suspected. The only pledge that seemed truly ambitious was the last one: to ‘stop the boats’ coming across the Channel, after the number of migrants completing the journey rose from 28,500 in 2021 to just under 46,000 in last year.
But five months into the year, it seems increasingly likely that Sunak is going to have to rely on statistical fudges – and a lot of luck – to meet his targets.
Take inflation: the consensus is still that the rate fell dramatically this spring (we’ll know the numbers for April in just under two weeks), because energy costs are way down compared with the same time last year. But the risk that inflation will stay higher for longer is ‘skewed significantly to the upside’ as the cost of domestic goods and services have skyrocketed, offsetting the falls we’re seeing in energy costs.
Just this week the Bank of England revised its forecast for December’s inflation rate upwards, from just under 3.9 per cent to 4.9 per cent. Despite all the optimistic noises coming from the Threadneedle Street (central bankers have their own self-preserving reasons for crafting narratives around inflation) this latest round of forecasts shows the rate taking longer to fall than previously expected. Under this scenario, Sunak would hit his goal of halving the rate of inflation – but only just.
What once seemed like an easy win has turned into a political headache for the Prime Minister. Other parties blast the Tories for ‘their complete failure to get inflation down’ – which would have been a wholly unfair accusation if it weren’t for the fact that the government decided to take ownership of something that is completely out of its control.
Then there are the wins that are actually taking place, but that are still not quite good enough to shout about. Growth forecasts have been lifted across the board, with both the Office for Budget Responsibility and the Bank of England no longer predicting a recession in the UK. Even the outlier forecasts that still predict a recession – mainly the IMF – have been revising their predictions upwards (the foundation’s latest World Economic Outlook report wiped out half the recession it forecast in January, upgrading the UK from a 0.6 per cent contraction to a 0.3 per cent contraction). But these upward revisions suggest that, rather than a fall in GDP, there will simply be zero growth this year.
Growth forecasts are almost always wrong and (in the case of the IMF) often underestimate the resilience of the British economy. Let’s be generous for a moment and say they’re all being too negative. Even in a scenario where we see a smidgen of growth, will it really be enough to allow the government to boast that it grew the economy? This week’s GDP figures are case-in-point: the economy grew by 0.1 per cent in Q1 this year, which technically makes good on Sunak’s pledge. But the Chancellor’s response was cautious; he used more vague language to suggest that this tiny uptick was not the end of the ‘government’s growth priority’.
In the absence of a serious growth agenda (with major supply-side reforms around planning ruled out, and the full effect of rising interest rates yet to kick in), it may be dawning on ministers that they may have to rely on a very small growth figure at the end of the year to fulfil their pledge. If growth is miniscule – and people feel poorer despite a larger economy, due to inflation’s war on wages – will the public accept this as a promise made good?
The same question goes for public debt. Will people really think that it’s falling when overall it keeps rather explicitly rising, on track to reach £2.38 trillion this year? This pledge will almost certainly be ‘made good’ by pointing to the Chancellor’s new fiscal rule that sees debt falling as a percentage of GDP within five years. The catch, however, is that this target is on a rolling basis: so as long as Budgets and fiscal statements are structured to show plans for fiscal restraint down the line, the projection for public debt can keep being described as falling in the near future – even if the Treasury, in practice, keeps racking up the bills.
It’s rather amazing that the government has got away with such a loose fiscal rule – the kind you might expect a left-leaning party to come up with so they could continue spending money with impunity. It speaks to the economic confidence that Sunak and Hunt brought to the table almost immediately when they came into Downing Street: they have managed to command market confidence despite doing very little to tackle the spending side of the ledger. A fiscal rule that could easily seem careless is viewed as safe by the markets – in this particular pair of hands, anyway.
But there are some numbers you simply can’t fudge. The NHS waiting list is one of them. This week we learned that the list on NHS England has risen once again, to a record high of 7.3 million. The NHS workforce strategy is expected in the next few weeks, but it’s not expected to include radical plans to deal with the structure of the health service itself (the Tory party won’t fiddle with this in a serious way, certainly not so close to election season). So ministers are relying on NHS management to get this number down.
Sunak is far too familiar with how this dependence tends to play out: as chancellor, he reluctantly agreed to give the NHS a Covid catch-up fund back in summer 2021. Then, he was told the £8 billion sum would be used to whittle the waiting list down to 5.5 million by 2025. But once the (now defunct) National Insurance hike was announced – to raise funds for social care, but first for the NHS – the health service informed government that the waiting list would have an extra million people on it (closer to 6.6 million by 2025) and that it would take billions more to achieve a less ambitious target.
One wonders, then, why the Tories have nailed themselves to the mast with another pledge so heavily reliant on another institution with a history of reneging on its targets. The NHS continues to fall short on virtually every key metric it is supposed to meet – from ambulance waiting times to diagnosis tests. As with his inflation pledge, Sunak may well get lucky with the direction of the waiting list figures. But that trajectory also feels broadly out of his control.
In response to a stubborn inflation rate, lacklustre growth trends and a failing health service, the Prime Minister has decided to put most of his focus into what was originally thought to be the most difficult policy challenge: small boats. The bad news for Sunak is that if this pledge is taken literally then it has already failed, as more than 6,600 people have already crossed the Channel this year.
But looking at the details of his pledge, you can see how Sunak plans to make good on it. ‘We will pass new laws to stop small boats,’ he said in January, to ensure that ‘if you come to this country illegally, you are detained and swiftly removed.’ Inside government, it’s thought that this pledge will be ticked off the list if deportation flights to Rwanda start taking off by the autumn. The expectation is that the flights act will as a deterrence: ‘stop the boats’ will really be a policy of making clear that the virtue of arriving from the Channel will guarantee that person’s deportation from the UK. But whether this deterrence strategy will work or not is another point entirely.
Despite seeming to be the trickiest pledge, it is also the area where we have seen the most government intervention: from the proposal of the Illegal Immigration Bill, to deals with the Albanian government to send migrants back to the creation of a barge to house asylum seekers. There is still scepticism in parts of government that this will be accepted by the public as ‘stopping the boats’ – especially if the number of boat crossings pick up with better weather. But it says something that the policy that was viewed as the hardest to deliver is now considered to have equal footing with the economic pledges.
In a better scenario for government, Sunak will end the year announcing he grew the economy (with a negligible growth figure); that he ‘halved inflation’ (while prices are still going up by more than double the Bank’s target); and that public debt is falling (thanks to hypothetical cuts down the line).
But given the trajectory of the year so far, it’s not hard to imagine a scenario where he has to accept some level of defeat – not least because, regardless of what happens with the economic pledges, the NHS will still have millions more people waiting for treatment than before the pandemic.
Hope remains inside government that Sunak will be able to go into an election year with plans for five more priorities. But five months into this year, it’s looking very optimistic to say that his first set of pledges will be done and dusted.
Comments