Last week the chancellor, Rishi Sunak, claimed in a TV interview that the government cash being spent to keep the economy running during the pandemic was not his money to spend but the viewers’ money. The subtext was that Covid-19 bills would have to be paid for. Mr Sunak was channelling his inner Margaret Thatcher, who in 1983 told her party conference that there is “no such thing as public money; there is only taxpayers’ money”. It is rhetoric frequently used by those who wish to suggest that the government faces the same budget constraints as a household. It is also economically illiterate.
The UK is not going to run out of money. The Bank of England is financing Covid spending by buying up huge amounts of Treasury debt under quantitative easing. Lord Turner of Ecchinswell, a former City regulator, told peers earlier this year that QE “is lubricating a fiscal expansion and making it easy for the government to run large fiscal deficits without the danger of setting a rise in interest rates”. We are living in an era of cheap money. Boris Johnson’s apparent repudiation of his own party’s austerity policies cannot be squared with real-terms cuts to some department budgets. The Treasury remains committed to balancing the books in mean-spirited ways: whether it is paying nurses a miserly 1% extra or cutting aid to the poverty-stricken parts of the globe. However demotic the slogans used by Mr Johnson, his words all too often betray the party’s real instincts. While Mr Sunak won’t find the cash to pay for catch-up lessons, his boss praises rich parents who buy private tuition because they “work hard”.
Mr Sunak is no believer in the power of government to do good. He remains a fiscal conservative. To his credit, the chancellor did not join the “inflation is back” bandwagon following an increase in consumer prices last month. He knows the economy is nowhere near operating at full capacity. The International Monetary Fund reckons that even with the UK economy growing at more than 5% annually until 2023, there will remain considerable slack in the economy.
Britain’s economic prospects depend on the success of its vaccine rollout, and its effectiveness against Covid-19 variants. Whatever the outcome, the March budget should soon be discarded, along with the idea that the country could spend less on key frontline services than what was planned before the pandemic. The National Institute of Economic and Social Research thinktank was right to call for the chancellor’s fiscal rules to be scrapped. Instead of focusing on arbitrary debt and deficit levels, it would be better for the government to target the levels of unemployment and investment it wanted.
The chancellor will have, thanks to better-than-expected growth, more cash to spend to repair the tattered fabric of society. Shortening the longest waiting lists in NHS history, dealing with the courts backlog, supporting the state-owned railway and fixing social care will all cost money. These bills come due just as the costs of transitioning to a net zero carbon world become apparent. It has been a badge of honour on the right since 1979 to decrease, in real terms, year-on-year public sector spending. In 40 years only four Tory chancellors have managed this feat – and none of them ever made it into Downing Street. Mr Sunak says he is on a different path and that he will increase overall spending. But if it does not feel like it’s enough then the country – and his career – will not prosper.
