Sunak splashes the cash, hoping inflation won’t catch up with him

By Chris White

Every Chancellor likes to pull a rabbit out of the hat, and Rishi Sunak had several.  The biggest was the 8% cut to the Universal Credit taper, but there were other eye-catching measures, not least the pre-trailed 6.6% increase in the National Minimum Wage, the reforms to alcohol duty and the 50% business rates discount for retail and hospitality businesses.

No more than three years out from the next General Election, this was a Budget that lasered in on two key issues – putting money back into people’s pockets, alongside delivering infrastructure projects before the next election.

The Universal Credit taper will benefit more than two million families, who will on average keep an extra £1,000 per year. Fuel duty was frozen, alcohol duty substantially reformed, cutting the cost of a pint by 3p, and more money allocated for affordable housing.

Equally, there was a concerted drive to deliver visible ‘on the ground’ changes, from funding for youth facilities and local community assets such as football pitches, museums and libraries, as well as an extra £21bn on roads, £46bn on rail, £5.7bn on London-style transport systems across the regions, 40 new hospitals and 100 new diagnostic centres.  The Chancellor reeled off a list of constituency-level investment, notably targeting several Labour seats in the north, hoping to shore up support and expand the ‘red wall’ ahead of the next election.

It can all be paid for by a bigger than expected OBR upgrade of £35bn per annum, which was much more than expected, allowing the Chancellor to spend the proceeds during the course of his speech.

The speech was significantly at odds in terms of tone to previous ones delivered by the Chancellor, more optimistic about the future, and upbeat in delivery. Sunak was keen to create the dividing lines with Labour, calling the Conservatives the party of public services, and forcing a vote in the coming days on his new fiscal rules – that borrowing should fall, and the state should only borrow to invest, not to pay for everyday spending.

However, his attempt to park Conservative tanks on Labour’s lawn was tempered by the spectre of inflation, which the OBR forecasts potentially to average around 4% next year, and potentially hit 5%, a rate of price increases which hasn’t been seen in the UK since the 1980s. Sunak may have just splashed the cash by ending the public sector pay freeze and cut the Universal Credit taper, but workers may find next year that their pay packet has not increased. This was a bold Budget, but it was one that may yet be overtaken by events.