Rishi Sunak's Prosecco Budget came with a hangover Conservatives hope will fade before the next election

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Every Chancellor faces a delayed reaction to their big Red Box moment, but the morning after the Prosecco Budget before, the hangover was quite something. 

First, the Resolution Foundation think tank set out that taxes would be £3,000 more per household than when Boris Johnson became prime minister. Then, the Institute for Fiscal Studies warned living standards were set to stagnate for several years. 

For good measure, the head of the independent Office for Budget Responsibility said “the real recovery in wages in next few years is close to zero”, as higher inflation and new taxes would eat into any gains.

Although Rishi Sunak wasn’t exactly punch drunk with all the criticism as he did his breakfast media round, he was on less than sparkling form as he tried to hail his cut in alcohol duty on sparkling wines. At one point, he even blurted out that he was in Burnley, when in fact he was in Bury.

That verbal slip was nothing compared to the way Sunak struggled to explain just how he could be a “tax-cutting Conservative” while presiding over the biggest long term hike in the tax burden of any modern Tory government.

A detailed look at the numbers behind the Budget and three-year Spending Review lay bare the full extent of the tax troubles facing traditional Conservatives.

Whereas George Osborne had a plan to raise the personal allowance steadily to £12,500, taking millions of the low paid out of tax altogether, Sunak has effectively junked that ambition. Instead, he has frozen the allowance, dragging many more people into paying tax.

Rishi Sunak’s Prosecco Budget came with a hangover Conservatives hope will fade before the next election
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Add in the national insurance rise and the median earner – famous “squeezed middle” – will lose £180 over the coming year.

And by freezing higher rate tax thresholds, the Treasury has ensured that more workers are now paying more tax. One striking statistic that the IFS unearthed is that some 11 per cent of workers will be in the higher rate tax band by 2025, nearly three times the number (four per cent) who were doing so in 1990.

With VAT receipts £4bn higher than forecasted this year, and predicted to be £9.3bn next year, Sunak’s refusal to cut the tax on fuel also means he faces accusations of profiting from the energy bill hikes.

The IFS pointed out that while John Major and Norman Lamont repaired the public finances with a mix of 50 per cent taxes and 50 per cent spending cuts, and Osborne opted for 20 per cent taxes and 80 per cent spending cuts, the Johnson-Sunak approach is effectively 100 per cent tax hikes.

Given the way the Budget confirmed that Johnsonomics is a deliberate dumping on the record of the David Cameron government, revenge was a dish served cold for the former Chancellor today.

Osborne has revealed in the Spectator magazine’s diary that at a recent No.10 dinner with the PM recently, Cameron joked he was nostalgic for “the good old days when there was food on the supermarket shelves, you could fill up your car and Tory Budgets cut taxes on jobs and businesses.”

Rishi Sunak’s Prosecco Budget came with a hangover Conservatives hope will fade before the next election
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Despite the spending splurged on some of their Red Wall colleagues’ constituencies, many Tory MPs share the unease that lies behind that barb. For them, there is a dawning realisation that while Sunak may deliver upto £7bn of small tax cuts before the next election, beyond that there are still years of higher taxes to fund an ageing population and “levelling up”.

For several unhappy Tory backbenchers, the real surprise “rabbit” pulled out of the Chancellor’s Budget day hat was not the Universal Credit changes. It was the sheer scale of real terms spending increases in the Spending Review, and the absence of tax cuts they entailed.

What should perhaps really worry traditional Conservatives is Sunak’s justification for his assault on another Osborne era policy: the steady reduction in corporation tax to allow the UK to compete on the global stage. The day after his last Budget in March, Sunak suggested he now rejected the traditional Thatcherite idea that lower taxes generated higher receipts.

Any increase in receipts from Osborne’s corporation tax cuts was mainly due to “cyclical” recovery in profits, Sunak told the Today programme at the time. Second, those tax cuts just didn’t produce the required step change in business investment the country needs, he said. This was a Conservative chancellor effectively undermining the Laffer Curve, the article of faith of many modern Tories.

Back in the here and now, there’s an undercurrent of fear among Tory MPs that Labour will exploit “unfair” tax hikes that hit ordinary workers rather than the richest, especially if the repair to public services doesn’t look tangible before the next election.

Most importantly, the scale of the new Tory tax risks means the party will find it hard to deploy a “Tax Bombshell” campaign against Keir Starmer and Rachel Reeves like the famous Saatchi and Saatchi advert that so damaged Neil Kinnock in 1992.

Tory MPs’ main hope is that if anyone can counter a “feel-bad factor” with promises of brighter days ahead (“just give me more time, folks”), it’s Boris Johnson. But they know their post-Budget headache isn’t set to ease soon.

  • Latest live updates after Rishi Sunak delivers the 2021 budget
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  • Alcohol tax slashed for beer and sparkling wine
  • Rishi Sunak announces Universal Credit taper rate will be cut to 55p
  • Fuel duty freeze remains in place amid soaring petrol prices
  • Watch Rishi Sunak’s 2021 Budget speech in full
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