Rishi Sunak will use budget to declare ‘age of optimism'

Asia's Tech News Daily

Rishi Sunak will use his budget to insist the UK is entering an economic “age of optimism” despite a looming cost-of-living crisis, after making a deluge of promises to spend billions more on health, transport and skills.

In an attempt to strike an upbeat tone during his second budget on Wednesday, the chancellor will say his aim is to create a “new economy post-Covid”.

But with the threat of rising inflation and holes in the public finances, Torsten Bell, the chief executive of the Resolution Foundation thinktank, warned the country was facing an “age of uncertainty”.

Though the Treasury has already announced a series of spending measures before the budget statement, Sunak is expected to unveil a flagship measure to help families hit by the £1,000 cut to universal credit.

Tory insiders predicted more help for people with their energy bills, although the Treasury has been denying reports that it will slash VAT on gas and electricity costs. A cut to the taper rate of universal credit to allow those in work to keep more of their earnings is another possibility.

Having already announced the biggest tax rise in 25 years last month, with the planned increase to national insurance, the chancellor has left himself free at the budget to emphasise planned spending instead.

In an unprecedented 19 press releases before the budget, the Treasury made £30bn of spending announcements across the health service, housebuilding, crime-fighting, transport and skills.

The announcements have sought to portray the chancellor as overseeing a spending spree despite the hole in public finances caused by the pandemic.

They include £5.9bn to help clear the NHS backlog in England; £2.6bn for special needs school places; £6.9bn for non-London transport; £3bn for skills; £5bn for health research and development; an increase in the “national living wage” to £9.50 an hour, and an end to the public sector pay freeze.

However, critics pointed out that much of the money had already been announced, such as £6.9bn for transport projects turning out to be just £1.5bn of new money.

David Gauke, a former Tory chief secretary to the Treasury, warned that people should be cautious about promises of big pots of money “without the full context” of the budget and line-by-line spending details.

Sunak’s decision to announce a string of spending measures, not all of it new, appeared to be “quite Gordon Brown-esque”, said Ryan Shorthouse, the director of the centre-right thinktank Bright Blue.

“It is measuring success by spending, which seems quite New Labour in its approach.”

He also highlighted Sunak’s apparent desire to take credit both for extra spending and fiscal restraint at the same time.

“When the chancellor doesn’t like something like universal credit or foreign aid spending, he talks about the need for restraint on the public finances. But this is not mentioned when it comes to spending on the NHS or other areas. The question is: are we in a period of retrenchment or not?”

Sources close to Downing Street suggested Sunak would continue to try to play both cards, emphasising both fiscal discipline and judicious spending to help the UK recover from the pandemic.

And despite the public focus on spending, some Whitehall departments could still face tough settlements.

Economists said the better-than-expected growth compared with forecasts from earlier this year had given him some room for manoeuvre but day-to-day public spending outside of the billions extra on the NHS will still have to be constrained if the chancellor is to stick to his fiscal rules.

The Treasury confirmed on Monday that the public sector pay freeze will be lifted, but ministers have so far refused to say whether teachers, nurses and police officers will get a real-terms increase.

During his speech, Sunak is expected to echo Boris Johnson’s claim that the UK will move to a new economic model, which the prime minister claimed was necessary as the country suffers post-Brexit labour shortages causing food and fuel delivery problems.

“Today’s budget begins the work of preparing for a new economy post-Covid,” he will say. “An economy of higher wages, higher skills, and rising productivity of strong public services, vibrant communities and safer streets.

“An economy fit for a new age of optimism. That is the stronger economy of the future.”

But with intense pressure on household budgets heading into the winter, opposition parties questioned whether Sunak really understood the concerns of struggling families. The chancellor released pictures of himself preparing for the budget on Tuesday wearing a pair of £95 sliders.

The shadow chancellor, Rachel Reeves, called on the government to “take the pressure off working people”.

“With costs growing and inflation rising, Labour would ease the burden on households, cutting VAT on domestic energy bills immediately for six months,” she said.

Ed Davey, the leader of the Liberal Democrats, also questioned the chancellor’s emphasis on optimism at a time when many people are struggling. “Britain is an optimistic country, but it’s hard to be optimistic when your children are missing out on school, energy bills are through the roof and the NHS is on its knees,” he said.

On the eve of the budget Bell warned that the country was facing an “age of uncertainty, not an age of optimism”.

“The place we are at is coming out of a recession but going into a cost of living crunch. The country is looking for is a resolution of the uncertainty of the pandemic but the budget is not going to be able to provide that.”

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