Budget 2020: The political perspective

Above all else, this Budget was a test of competence. Britain is in the midst of a public health emergency. At the end of the year, it will cut itself loose from the European Union. To describe the economic outlook as uncertain is something of an understatement. The role of the chancellor at such times is to demonstrate grip and to offer reassurance.

Rishi Sunak, an ambitious young chancellor setting out his stall at the start of a new parliament, looked as if he was enjoying the Budget theatrics. He arrived at the House of Commons dispatch box with tens of billions of pounds worth of reassurance. It helped too that the Budget had been preceded a few hours earlier by the Bank of England's announcement of an emergency half-point interest rate cut.

In its way, this was a very unconservative Budget: lots about increases in public spending, much less about where the money is coming from. Did not the 39-year old Mr Sunak have a reputation as something of a fiscal hawk? Where, old-school Tory MPs wondered, were the Thatcherite pledges to reduce the burden of tax on the nation's hard-working families? The answer is that they were lost to the politics.

Against the potential impact of the coronavirus pandemic and the inevitable disruption to trade and investment that will flow from Brexit, this is probably no bad thing. Whatever the long-term trajectory for the public finances, 2020 is not the year for fiscal sackcloth. The economy is sitting on the edge of recession. If there was a time for a significant stimulus – and all-in-all the Budget added an extra £30bn to the economy – this was surely it.

Mr Sunak’s package came in two parts. The £12bn of emergency measures to offset the shock of coronavirus looked well judged. They were coordinated with the Bank’s rate cut and spread across the business and individuals likely to be hardest hit by the pandemic.

Self-employed workers, the low paid, and small and medium-size businesses will all benefit from the tax and business rate holidays. The NHS will get ‘whatever it needs’ to fight the virus, and Mr Sunak made it clear there would also be more to come if the economic damage inflicted by covid-19 virus is even more than expected.

The rest of the stimulus will come from meeting spending commitments set out in Boris Johnson's election manifesto. The prime minister wants to build a reputation for ‘getting things done’ so there was more money for investment in infrastructure – roads especially – for research and development, for affordable housing and for a yet further top up for the health service. Here, along with the pledge of further increases in the minimum wage, was more than a nod in the direction of the party’s new ‘red wall’ voters in the former Labour heartlands of the Midlands and North.

The intention to bury once and for all the memory of George Osborne's austerity had been flagged in advance. In the event, it sometimes seemed as if Mr Sunak was dancing on Mr Osborne’s grave. Even before the coronavirus measures are taken into account, the Office for Budget Responsibility was calling this the most fiscally expansive Budget for three decades. The chancellor said he was holding on, for now, to the Treasury’s fiscal rules. Few expect them to last beyond a second package of spending and tax measures planned for the autumn.

As time passes, however, the politics will get more complicated. Beyond confirming a freeze on corporation tax, cutting reliefs for entrepreneurs, raising the threshold for national insurance payments and baulking at an increase in fuel duties, the Budget said precious little about the chancellor's tax intentions. Is he really content to see borrowing rise to three per cent of national income during the mid-2020s? Or will he try to recoup some of the extra spending by squeezing other tax reliefs.

This in turn points up the big question that went unanswered in the Budget. How does the government intend to balance during the next few years its commitments to the two distinct communities of voters on which Mr Johnson's majority at Westminster now depends? Will be an unabashedly high spending or a low tax government? Or will it opt for a third way? Public borrowing can take only so much of the strain.

Is it to Grimsby or to Guildford? is another way of putting it. For now, the prime minister is making great play of his determination to repay those Labour voters in the Midlands and North who flocked to his standard during the election campaign. But at whose expense? The costs can scarcely be loaded on the Tory shires. The good burghers of Guildford are not much keen on the notion that ‘levelling up’ economic opportunity should mean that they lose, say, the higher-rate tax breaks they receive on pension contributions.

History’s eventual judgement on the Budget will probably depend on the course during the next few weeks and months of the coronavirus pandemic and, beyond that, on the success or otherwise of post-Brexit trade negotiations with the European Union. Whatever else is certain, 2020 is going to be a tough year for the economy.

The deeper question, as yet still in the air, is whether this was the moment the Conservatives abandoned low taxes in favour of free-spending political populism? Mr Johnson, it seems, is already leaning in that direction. But the confidence he displayed presenting his first Budget suggests that Mr Sunak is not going to be the No 10 cipher many at Westminster imagined.

At some point, the real chancellor will have to show himself.