The Tory party has reached a fork in the road, I say in the Times today. One path involves sticking to the spending plans, hoping to cut taxes before the next election and getting rid of the new perception of them as tax raisers. The other drags them into ever more spending, led by big increases in public sector pay, and ends with them going to the country as a high-tax party.
In his Budget speech and his address to Tory MPs, Rishi Sunak made clear that his preference was for the former approach, which should cut taxes before the country goes to the polls again. But sticking to even the spending limits set out this week will require tough choices that the Tories have not wanted to make in recent years.
The first pressure for more spending will come from public sector pay. It was unfrozen in the Budget. Yet if the government wants to cut taxes before the next election, public sector pay can’t really rise by anything more than inflation.
The other great threat to Sunak’s desire for tax cuts is inflation and interest rates. A 1 per cent increase in both would cost the government around £20 billion a year, wiping out the war chest the Treasury is trying to assemble.
Johnson's Tory party is more comfortable with a role for the state than at any time before Thatcher. Levelling up is not a laissez-faire idea.
But this Budget has pushed big state Toryism to its limit. If the Tories can’t stick to their current spending plans and start getting taxes down, then the country will be caught in a high taxes, low growth trap.