As the Conservative party plots a way out of “partygate”, with or without its current leader, the path towards re-election in 2023 or 2024 is looking hazardous.
In December 2019, flush with an 80-seat majority and a public spending deficit of just 2.6%, the outlook was rosy for a cabinet dominated by Brexiters keen to reward their supporters with one spending initiative after another.
Spraying money around was not a problem while the deficit was low and the extra borrowed funds were clearly earmarked for investment. Criticism from small-state Tories, mindful of the demand from constituents for tax cuts, would be smothered by the joyful urge to spend after a decade of austerity. And there was the added bonus of political cover offered by a Labour party that had argued over several years for higher spending on infrastructure, support for small businesses and skills training.
Billions and billions of pounds were going to be spent pump-priming a stagnant economy that had suffered badly since the 2016 Brexit vote, not that Brexit was ever going to be blamed. According to the rhetoric, boom-boom Britain was just a few steps away, with its attendant fruit of high-skilled, high-wage jobs for all.
That was then. The outlook these days is far from rosy, especially now that the pandemic has soaked up so much of the magic money tree’s imagined largesse.
Underlying the arguments over April’s national insurance rise and the extent to which it will add to the rising cost of living is a more fundamental battle between low-tax Conservatives who believe in public spending restraint and those who still carry a flame for Johnson’s more extravagant plans.
With his job-protecting furlough scheme declared a resounding success, Rishi Sunak considers himself, as chancellor, more on an equal footing with No 10, much as George Osborne did post-2010. As such, he leads a hawkish brigade who focus on the deficit and the overriding need to bring it back to pre-pandemic levels, with tax cuts to follow.
The Office for Budget Responsibility says government borrowing reached a peacetime record of £320bn, or 15.2% of GDP, in the financial year 2020-21. The current year is expected to see that figure fall to £183bn, or 8% of GDP.
Emphasising the dilemma facing those on both sides of the debate, the figures for December’s public spending show the deficit to be on an even lower trajectory. According to Johnson supporters, this hands the Treasury enough cash to boost welfare payments and offset the worst of rising prices for most people on low incomes while staying in line with the OBR forecast. Sunak supporters dismiss this way of thinking and ask why the deficit should not fall at a faster rate.
The OBR forecast does not determine government policy: it only provides a framework, as its outgoing chief economist, Charlie Bean, emphasised last week.
Bean, who was deputy governor of the Bank of England during the 2008 crash, told Bloomberg that ministers “look at the central OBR projection and say we’ve got whatever billions to play with, and then spend that exactly”. He added: “The consequence is that when we change our forecast by even a modest amount, that translates one-for-one into what the government thinks it can spend. It troubles me that policy is made that way.”
And so it has proved in the pandemic. In March, the OBR will have another crack at the numbers. If it upgrades its forecasts, there will be yet more pressure on Sunak to spend the difference, while Sunak will still argue for years of austerity.
Johnson and his supporters, foreign secretary Liz Truss among them, are desperate to recreate the spirit of that election victory in 2019 by spending every penny “allowed” by the OBR forecast and as much as they can get away with on top.
If the economic landscape in 2022 looked like 2019, that might be a plausible position. Sadly, for them and the rest of us, large parts of the public sector are in desperate need of repair, to the extent that they will soak up any extra spending before anyone begins to even consider options for investment.
The government could ignore the millions of school pupils who need to catch up with their studies and set aside hospital waiting lists, freeing up money for investment. Likewise, the 50% sliced from the skills training budget, the billions of pounds stripped from local authorities and the clamp on public sector pay could all remain in place.
Yet that hardly seems plausible without beckoning forth an electoral rebellion when the Tories seek a new mandate. Too many contradictory promises have been made. Ousting Johnson cannot by itself resolve them.
