The headlines will focus on the £30 billion debt-fuelled stimulus package, “only” £12 billion of which is in response to the coronavirus. The coronavirus gives cover for the big state ‘One Nation Toryism’ that many in Downing Street have always wanted. Dominic Cummings is not a tax-cutting, free market loving, state shrinking, right-winger.
Was Britain really in need of a debt-fuelled stimulus? Unemployment was at an historic low and the country had the strongest growth of any major European economy. The coronavirus could be a major global shock or it could be a temporary danger, which is why the Chancellor was, to be fair, keen to emphasise that some of the measures were temporary. Guido got the sense that it was a Keynesian counter-cyclical budget ahead of a feared coming recession. Sunak claimed he was sticking to the fiscal framework promised in the manifesto, which might not be true if you include the £12 billion coronavirus spending that the OBR hasn’t included in their calculations, or if the OBR’s GDP forecasts turn out to be over-optimistic. Which they could very well be…
The Chancellor hinted that the fiscal rules might go out the window in the autumn, this would be a mistake, it will mean that the Tories doubled the national debt in a decade – without having gone through a recession. As Rishi used to tell us, that debt will be drag on growth and a burden to be paid by the heavier taxation of the next generation.
Worst of all state spending will grow to a dominant 41% of spending in the economy, with the tax burden already at at 50 year high this will only cause taxation to go even higher. Dominic Cummings is convinced that state-directed spending on technology will drive economic growth and increased productivity, historically billions of taxpayers’ hard earned cash has been wasted on mega-projects that were not viable in the real world… what will be different this time?