The Econmist - USA (2021-10-30)

TheEconomistOctober30th 2021 33

Britain

Fiscalpolicy

Farewell to austerity

W

ho is rishi sunak?  Listen  to  the
chancellor’s recent rhetoric, and you
could be forgiven for thinking he was cast
in the mould of a predecessor, George Os­
borne, who slashed the state in response to
the  global  financial  crisis.  In  a  speech  to
the Conservative Party faithful on October
4th Mr Sunak described borrowing as “im­
moral”,  and  emphasised  his  eagerness  to
restore order to the public finances. But the
budget  he  delivered  on  October  27th  con­
fused  the  picture.  Reeling  off  spending
measures, he refused to apologise for rais­
ing  taxes  and  lauded  the  spending  they
supported. “The Conservatives are the real
party of public services,” he trilled.
Mr  Sunak  displayed  rare  munificence.
Government  departments  will  get  real  in­
creases in their budget of 3% a year on aver­
age until 2024­25, an increase reminiscent
of  largesse  last  seen  consistently  in  the
2000s.  Even  more  eye­popping  are  the
chancellor’s plans for the size of the post­
pandemic  state.  According  to  forecasts  by
the Office for Budget Responsibility (obr),
a  watchdog,  spending  will  grow  from
39.8% of gdpbefore the pandemic to 41.6%

by 2026­27, the highestsustained share

sincethe1970s.Taxwillrisefrom33.5%of

gdpto36.2%,a levelnotseensincetheear­

ly1950s.Theannouncementsrecallednot

MrOsborne,buta verydifferentpredeces­

sor:Labour’sGordonBrown.

TheBrownitegiveawaywasprompted

bya surprisinglyperkyeconomy.InMarch

theobrprojectedgdpgrowthof4.1%this

year.Now, thanksto rosieremployment

figures,itpredicts6.5%.Inthesameper­

iod,medium­termdamageexpectedfrom

covid­19hasgonefroma gloomy3%ofgdp

toa cautious2%.Partofthisissimplythe

passageoftimerevealingthatinvestment

hasperformedbetter thanexpected.But

MrSunakisalsobenefitingfromhisadroit

handlingofthepandemic,whichlimited

thehittocorporatebalance­sheets.

AllofthismeansBritainisborrowing

less than expected. People are earning

more,whichincreasesthetaxtake.AndMr

Sunakhasraisedtaxes.InSeptemberhe

announcedahealthandsocialcarelevy,

whichwill bringinanetsumof£12bn

($16bn)by2024­25,andincreaseddividend

taxrates.Thisyearhasseenthebiggest

overalltaxrisesince1993—whichisnota

messagetheTorieswillputonleafletsat

thenextgeneralelection.

MrSunakdidoffersomeredmeatto

Conservative members.Therewas relief

forpayersofbusinessrates,a cuttocor­

porate­taxratesforbanksandthenowtra­

ditionalfuel­dutyfreeze(ashashappened

withoutfailforthepastdecade).Butnone

ofthesewillcostmorethan£2bna yearby

2024­25.MrSunakalso announcednew

fiscalrules:therewillbenoborrowingfor

day­to­dayspendinginthreeyears’time

anddebtwillfallasa shareofgdp. Oncur­

rentplans,hewillmeetthesetargets,but

hehasleftlessmarginforerrorthanhis

predecessorsdidwiththeirrules,whichall

wentunmet.

Bythenextelection,MrSunakplansto

Rishi Sunak’s budget marks a turn to big-stateConservatism

→Alsointhissection

34 Happyentrepreneurs

35 Britain’sbatterybonanza

35 Liftingtheminimumwage

38 A contentiouschicken

38 Takingonthetaxman

40 Bagehot:GreenBoris

The wartime state

Britain, tax as % of GDP

Source:OBR

1

38

36

34

32

30

28

26

2620102000908070601948

FiscalyearsbeginningApril

October202

March202

Actual

Forecasts made in: