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My column today is on the dire state of the public finances, and why Rishi really does need to take Boris’s credit card away. Please do read the full thing, but a quick thread for context. (1/?) https://www.thetimes.co.uk/edition/comment/in-case-no-one-has-told-you-yet-debts-piling-up-and-theres-only-one-way-out-growth-prllcwpmx
As I say in the column, the cost of the pandemic is gargantuan. Borrowing this year will be £350bn-£400bn - that’s 3x NHS England budget. The contracts for the moonshot testing programme alone are £43bn - 1/4 of income tax collected via PAYE.
And lockdown two has come with full-fat furlough till end of March (original cost: £14bn a month, though it'll be less this time), plus another massive hit to GDP/tax revenue.
We don’t need to pay this money back now. In fact, tax rises/spending cuts in the middle of a recession are a bad idea (especially tax rises on business, Chancellor…)
But we’re not just amassing a one-off bill. We’re pushing long-term spending higher - on a shrunken tax base. Eg the £20 extra for Universal Credit that is going to be the next free school meals will cost £7bn+ every year - equivalent to a penny on income tax pus 4p on fuel duty
The Tories were already spending as much as they could afford pre-pandemic - and that was without including the looming costs of NI cuts, hospital-building or social care reform (where you can either do it cheaply or protect family homes, but not both).
(There is also the promised infrastructure spending, but that’s both a good recession-era stimulus and should pay for itself over time given where interest rates are…)
There are two things that are keeping the Treasury up at night. The first is a rise in borrowing costs (esp after QE ends/winds down next year) that wrecks public finances. The second is that Boris really, really likes signing cheques.
Sunak himself is joking about the credit card (in this interview today with @shippersunbound, which you should definitely read https://www.thetimes.co.uk/edition/news/rishi-sunak-dusts-off-his-christmas-tunes-but-signals-tax-rises-in-spring-02gk3kh2p). But others are blunter - one Tory I talked to compared Boris to Billy Bunter in the tuck shop, unable to restrain himself
This is the context to understand eg the Treasury’s positive response to @cpsthinktank’s proposals on public sector pay, or reports re cuts to aid spending and higher rate pension relief, or increases in CGT/corporation tax (boo).
It’s not about a new age of austerity, or even closing the deficit any time soon. It’s about trying to keep the finances just about under control at a time of enormous short-term and long-term spending pressures, with more IOUs being added to the pile regularly.
The increase in the MoD budget, for example, is bigger than every single day-to-day spending pledge in the Tory manifesto put together - or, if you prefer, bigger than every single tax cut in same.
Ultimately, as we at @cpsthinktank have argued, the only thing that gets us out of this is growth - which means doing everything we can to boost the private sector to grow and hire (and certainly doesn’t mean raising taxes on business).
But govt also needs to be really, really disciplined about what spending commitments it can and can’t afford in the next few years - and be prepared to make savings elsewhere to fund them rather than widening the structural deficit further.
For more on this, see my column today https://www.thetimes.co.uk/edition/comment/in-case-no-one-has-told-you-yet-debts-piling-up-and-theres-only-one-way-out-growth-prllcwpmx - @dsmitheconomics also interesting as ever here ( https://www.thetimes.co.uk/edition/business/in-a-fiscal-hole-and-the-government-keeps-digging-wjj2x87r2), even if he doesn’t agree re public sector pay…
