Analysing The Political Economy

Rishi Sunak or Ebenezer Scrooge?

Economic Times Editor: Dickens is so rich in misers – Arthur Gride in Nicholas Nickleby, Anthony Chuzzlewit, Mr Boffin in Our Mutual Friend (albeit a fake miser) – but the most recognisable miser in Britain is the most obvious – Ebenezer Scrooge. He is the life-denying penny-pincher to trump them all, and his name entered the language because of it. In this spring statement – Rishi Sunak came across as just that – a life-denying chancellor who chose to take inflation driven windfall money from those hardest hit for the purposes of retaining power.

To be fair, Rishi Sunak is in a difficult position really. On the one hand, he wants to cut taxes and unleash British enterprise. But there’s a problem – what’s on the other hand. He has the orthodox fiscal convictions of a typical libertarian but a prime minister who has demonstrated a highly confused form of Conservatism that wishes to spend public money on grand causes that Sunak thinks is wasteful.

Balancing these tensions will always prove to be challenging. The economy has been battered by the 2008/9 bank-led financial crisis, buffeted by Covid-19 and now Putin’s Russian invasion of Ukraine. Yet this unending buffeting of the economy has also given Sunak a surprise windfall in the form of rapidly rising and unexpected (and unbudgeted) inflation.

What this does is to reduce the real value of cash-limited (because it’s budgeted for) spending but increases real fiscal revenue, which is unexpected. It’s a bit like paying your mortgage but getting promoted unexpectedly and getting a decent boost to your income. So in this scenario, Sunak has more money to play with.

Sunak’s Spring Statement is a demonstration of who he really is. The reality was that he chose to give into the politics of the party and satisfy the more right-wing and one has to say, most vocal backbenchers – some of what they wanted – and banked the rest.

Sunak has made a mistake. One only has to look at the headlines today. Not one of them solidly got behind the Chancellor’s spring statement – with most slating it as being miserly given the windfall. But actually, it’s worse than that – it’s hypocritical. Sunak is taking the tax increase windfall, giving a small amount away and building a financial war chest on the backs of household strain and misery – only to give it away to keep his party in power at the next election.

The Office of Budget Responsibility has pointed out that aggregate real household disposable incomes will fall by 2.2 per cent in real terms between 2021-22 and 2022-23. This would be the steepest annual decline in at least 66 years.

Although Gross domestic product per head is forecast to increase by 1.5 per cent from 2022 to 2023, it will mean next to nothing to average household incomes. Again, it is the poorest of households who get hit the hardest and this mini-budget did very little to protect them from those oncoming headwinds.

All things are possible right now. The war in Ukraine might suddenly stop and oil may well be overflowing because of it and its price might fall. Maybe Covid will go away, maybe everything will calm down and normality, or what looks something like it returns. This is not where the betting is. It is far more likely that the Ukraine war will linger on, that inflation will continue, that jobs will get lost later in the year and a recession could easily develop in 2023 making everything for the bottom 50 per cent so much worse.



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