Autumn Budget 2021 - Buying votes with short-term policies won’t bring about long-term growth
Rishi Sunak took the plaudits for his budget, thanks either to his 50 per cent business rate discount, £100 million of spending per year on pubs, or shipping being able to fly the red ensign. But the rhetoric disguised the fact that this won't bring about the growth and levelling up the country needs, writes John Longworth.
This budget was seen as a big moment for the Chancellor. With the country no longer under the yoke of pandemic restrictions (we better hope none are reintroduced this winter) and with more than two years until the next general election, it presented a fantastic opportunity to set out, as Sunak put it "an economy fit for a new age of optimism".
Yet what we saw was not a budget for a new age. Rather, we saw only a temporary shifting of the goalposts and short-term fixes and virtue signalling that do not come close to solving the long-term issues facing this country.
The pure amount of spending outlined in this budget makes it reasonable to brand Sunak a hypocrite. Early in his speech he spoke of budget responsibility and discipline. He then proceeded to outline a return to increased spending on overseas aid, nationwide pay rises, and a £44 billion increase in funding for the NHS. The NHS is a spending black hole which, despite the vast sums of money thrown at it, is an undeniably low standard deliverer of healthcare relative to our European rivals. We need to stop looking at the NHS as a religion and instead as a service provider; were it any other provider, we would not throw money at it, we would undertake wholesale reforms to ensure our money produces better results.
As the voice of family-run and owned businesses in the UK, the Independent Business Network, which I chair, has been consistent and vocal in its calls for reform of business rates, as well as cutting VAT and corporation tax. While a 50 per cent discount on business rates is something thousands of business owners up and down the country will be thrilled with, the caveat here is what immediately preceded this discount – "one year". Sunak says he is backing businesses, but he clearly doesn't trust their potential enough to truly let them loose by permanently eliminating the current rates. Such taxes are taxes on work and hard graft, and impede the ability of businesses to truly take off. Were they to do so, it is likely they would pay more due to greater income than they would do through business rates. But alas, we have the most un-Conservative Conservative government we have ever seen, and tax seems to be their go-to source of finance.
On tax generally this was Sunak's opportunity to use the new freedoms of Brexit to cut corporation and personal taxes in order to go for super growth and, in so doing, achieve greater tax receipts. Instead, he has chosen a doom loop of tax and spend. Given that the Chancellor had unexpected headroom he had ample opportunity to pursue a growth agenda and deliberately chose not to.
On infrastructure, the Chancellor promised, among other figures, £46 billion for investment in railways. This would not have been necessary had the Government not already wasted tens of billions of pounds on an HS2 project that now appears dead in the water. Improved infrastructure can create and facilitate greater productivity and growth. The high speed line from London to Birmingham is the perfect example of how not to do it. This money, if it isn't frittered away trying to recover HS2, must be spent on improving regional connectivity which can boost enterprise, not just so that the London commuter belt can extend its reach. Digital infrastructure is vital for a modern economy as is energy security. If we are going to build road and rail improvements then let us connect regional towns and cities.
The promises relating to innovation, domestic R&D tax reliefs and money for skills boot camps are welcomed. These are positive steps towards ensuring that when more of our children enter the workplace, they will have the skills for wealth generation, and will be able to use these skills across the UK and not just in London and the South East.
The goal of this budget – to level up the nation and reinvigorate growth – is a laudable one. However, what the Chancellor has promised simply will not cut it. The return to existing levels of regulation and taxes will stifle future growth opportunities, and if the Government's main method of wealth creation is simply to fund pay rises and more welfare, sustainably achieving a high wage economy without bankrupting ourselves appears highly unlikely.
Deregulation and regulatory divergence would free up enterprise and make the U.K. supremely attractive to entrepreneurs, creating an enterprise friendly environment in which the winners pick themselves. This will then naturally increase wages, as businesses are able boost productivity and to offer more to their staff. Forcing businesses to pay more overnight, especially in the leisure and hospitality sectors, could leave many either unable to pay their staff or force businesses to cut staff levels; in other words, a sure-fire way of ensuring boom quickly becomes bust.
Our high-spending Prime Minister now has an equally high-spending Chancellor to fund his bold agenda. In a post-Covid world Sunak had a unique, post-Brexit opportunity to set out a plan for super growth, but instead seems to be reverting back to the mistakes made in the 1940s, investing in welfare: the NHS, net zero and aid, rather than investing in economic growth and wealth creation. Unless he sees the error of his ways the net result of this will eventually be a repeat of the 1970's: debt, inflation, unemployment.
The chickens will come home to roost.
