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Rishi Sunak flags his distaste as he spends like a sailor

Rishi Sunak’s Budget began and ended with heroic words. He started by preaching a new conservatism and concluded by promising to stop it as soon as he could. Over the course of an hour he went from an “economy for a new age of optimism” to a restatement of his Thatcherite determination to cut tax and to hold back the boundaries of the state.

In part this reflects Sunak’s open discomfort at presiding over the highest- taxing government since the 1950s. But the tensions within his own speech also highlight what is going to be an ongoing dispute within his party unless the economy starts to grow at levels which no one is currently predicting. Boris Johnson has offered voters a vision of a new and considerably more interventionist Conservative party. Sunak is making clear his hope that fundamentally the Tories have not changed.

Having said that, between his opening and his peroration, Sunak spent like a sailor. His concluding credo looked therefore rather like a none-too-coded message at the end of a hostage video — an insistence that he had been forced to say this and that the real Rishi was still inside just waiting to get out. Aided by better than predicted public finances, a chancellor whose “goal is to reduce taxes” could have walked back some of the hefty increases he announced in March and September. Instead he simply let everyone know how much he hated doing it and spent them anyway.

What he has not spent, he is hoarding both as a buffer for emergencies but mainly for a pre-election splurge in which he returns some of the cash he could already have chosen not to take.

Whatever Sunak’s discomfort, the politics of this approach cannot be faulted. Johnson has, from the outset, defined his government in opposition to the previous conservative administration of David Cameron and George Osborne.

Johnson’s party have publicly buried austerity and in this Budget Sunak interred significant legacies of Osborne-ism. Increases in education spending over the next three years will restore the payment per pupil to its 2010 level. A widely welcomed and much-needed change to universal credit, which allows working claimants to keep more of what they earn, restored the benefit to the level originally intended before Osborne took an axe to its budget. This was though one moment where Sunak made a stand for his beliefs. He has saved £6bn by ending the temporary £20 a week increase in UC and his reforms will cost just over a third of that. As important, it conforms to a conservative ideology of increasing welfare to reward people working.

Viewed against the pandemic and the Conservative party’s political strategy this was a smart Budget. Sunak has announced £150bn increases in spending over the next three years, though in many instances these simply start repairing the damage done by the pandemic and the years of austerity. He has also made good on his commitment to capital investment to drive growth, productivity and to even out regional imbalances.

As deft as ever, Sunak has neutralised a number of previous lines of attack. The universal credit reforms will take some of the heat out of his decision to end the temporary Covid uplift to the benefit. Reforms to business rates will take some of the sting out of complaints the government is overtaxing enterprise. His promise to reverse the cut to overseas aid spending by 2024/5 will ease a bone of contention as the government tries to drum up COP26 pledges of support for the developing world.

What remains missing though is a convincing strategy for growth. The pitiful Brexit baubles in the Budget, more ships flying the Red Ensign and a hardly-green cut to tax on domestic flights continue to illustrate the lack of any meaningful dividend. Brexit may be justifiable politically (depending on one’s views) but the government is still searching for a meaningful economic case. While the substantial capital spending, skills and infrastructure investment should all be cheered, they are some way short of transformational. The Conservative party remains a political project in search of an economic strategy.

Perhaps the more immediate risk is that voters bank the spending but notice the cost of living increase and feel the impact of inflation, largely stagnant real wages and rising energy bills. Real disposable income is expected to grow by 0.8 per cent a year, according to the Institute for Fiscal Studies. But Sunak has a cushion to address that should the political need become acute. Voters in any case show no indication of believing the opposition has more convincing answers. In the meantime, Johnson and Sunak have left Labour very little room to manoeuvre.

The chancellor may bellow his distaste for his tax rises and plan to give some back but he cannot gainsay Johnson’s political instincts. His only weapon against spending demands are his fiscal rules. But if the growth on which Tories are counting in the long term does not materialise then the trade off between a more active state and lower taxes will ultimately have to be faced. Sunak may make the moral case for a smaller state but the country has heard Johnson’s commitment to better public services and has bought the argument. The cost of stealing Labour’s clothes is that he may have to keep wearing them.

Whether they can transform Britain’s economy remains an open question but the mission to change how the country views the Conservative party continues unabated. Someone should warn the chancellor.

robert.shrimsley@ft.com

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