CHANCELLOR Rishi Sunak gave his usual restrained performance at the dispatch box, delivering his latest mini budget today. Technically this was a “Spending Review” since it was more about paying out than gathering in through new taxes.
But even this was misleading, as a normal Spending Review covers three years, whereas this was mainly about the next twelve months. One can’t really fault Sunak regarding his time horizon. With the course of the pandemic still uncertain, and with no post-Brexit EU trade deal in place, the economic future is not just uncertain, it is up in the proverbial air.
Sunak is now in his forties but has something of a schoolboy air. Also, he comes across as a bit of a swot though mercifully without George Osborne’s public school arrogance or Gordon Brown’s surly, know-it-all attitude.
Sunak is an ex-investment banker and self-made hedge fund millionaire. He wants power not adulation.
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The Chancellor’s latest pandemic spending round promises to pump yet more billions into the economy through 2021. He has no option. The latest forecast (guess) from the Office for Budget Responsibility says the economy has seen its largest fall in output in 300 years and that employment won’t recover till the second half of the decade.
Even then, Sunak thinks the “economic emergency” has “only just begun”.
His answer is to throw yet more money at the problem, at least for this year, in order to maintain demand.
Public accounts are invariably opaque and Treasury spending has been a moving target since March. But assuming there is nothing hiding in the small print (which there usual is) this Spending Review adds an extra £45 billion to departmental budgets for 2021-2022, with Scotland getting its Barnett share.
Note: there is a lot of jiggery-pockery involved, moving cash between departments, so expect Holyrood to be short-changed.
The reason Sunak gave for the wage freeze is because private sector workers are unlikely to get a rise, due to the economic crisis. So: solidarity in misery
Also, while total departmental spending in the next financial year (2021-2022) is also slated to rise, it won’t do so to the same extent as this year. Even then, big rises to defence spending will eat up a lot of the new cash. Result: I’m not convinced Sunak will be playing Santa Claus after next March, assuming the pandemic assuages.
Where there is a bung is in capital spending rather than for ordinary revenue outgoings. The Spending Review promises a £27bn real terms increase in capital spend for infrastructure, compared to 2019-20. This is basically a bribe to the ex-Labour Red Wall constituencies in the North of England, though presumably there is also a hidden subsidy for HS2 and London Crossrail, as they continue to spiral ever more over budget.
Beware when a Chancellor offers gifts, there’s usually a catch.
History will probably fault Sunak for shovelling cash out the door with little regard to value for money. It is already clear that emergency pandemic spending increases have resulted in wholesale fraud and overpayments.
As much as £3.5bn may have been handed out in fraudulent furlough payments and a truly staggering £26bn may have been lost through the Covid-19 business loan scheme as a result of deception or inability to repay. Yet the Treasury documents accompanying the Spending Review have the cheek to say that SR21 “builds on the UK’s well-regarded system for managing public money”.
Despite the spending increases, the Chancellor has chosen to freeze public sector wages – which will squeeze Scotland’s Barnett contribution if ScotGov wants to go a different route.
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The reason Sunak gave for the wage freeze is because private sector workers are unlikely to get a rise, due to the economic crisis. So: solidarity in misery.
In fact, the wages of public sector workers in the care sector are miserly, with the result there is a constant labour shortage. Boosting public wages is the best way to increase consumer demand to help the economy, especially if private jobs are being lost.
Meanwhile, the Chancellor is continuing with his pet project to create ten Freeports around the UK – he now promises that Scotland will get “at least one”. Freeports are low tax, low regulation enclaves which only steal jobs from other areas. Sunak sees them as an offshore haven to undercut European manufacturing.
Sunak made much of the need to “get public finances back under control” – we are promised tax rises next year. The ostensible reason is because public “borrowing” has shot up. Yet the Chancellor’s documents show the cost of servicing the National Debt (circa £2 trillion) is actually falling because of low interest rates!
In fact, the latest public spending increases are being funded by the Bank of England, which is owned by the Government. In other words, Chancellor Sunak is taking from one pocket and putting it in another. So why raise taxes?
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