The Prime Minister has said repeatedly that she is willing to make unpopular decisions in the national interest. Today she proved it. The Chancellor’s mini-Budget was a full-fat economic statement and an ear-splitting signal to the markets and the electorate that the Government is willing to back up its small-state, low-tax convictions with hard policy.
The abolition of the top-rate of tax, the removal of the cap on bankers’ bonuses and reversing the dividend tax rise will all be deeply unpopular with voters, and easily attacked by the Government’s opponents. Plans to relax planning rules within new investment zones may also prove locally contentious, depending perhaps on where they are. This is Millwall-style government: no-one likes us and we don’t care.
Ministers argue, rightly, that short-term unpopularity is a small price to pay for long-term growth. The UK economy is in a rut and the only way to get it out is with a jolt. The choice, they argue, is between stagnation and prosperity: they are choosing the latter. And they are correct in their diagnosis: the UK has been stuck in a low-growth, low-productivity trap since the financial crisis and is getting poorer. The question is whether the prognosis is right too.
That is where they are making an almighty gamble. More tax cuts were announced today than any time since 1972, when Anthony Barber’s “dash for growth” resulted in a brief boom followed by a plunging pound, First World War levels of inflation, and sharply rising unemployment and strikes. In 1974, the Conservatives asked “Who governs Britain?” and the electorate replied: “Not you”.
The gamble might yet pay off. No one will argue that reducing supply side barriers to investment and increasing incentives to work and do business will not feed through into faster growth – even if the UK faces other barriers too around weak skills, fraying social fabric and deep regional imbalances. There are, also, good political arguments for doing these changes all at once: it sends the strongest possible signal to the markets and it thickens the dividing line with Labour, whose objections will be painted as anti-growth.
But there are serious downside risks too, both economically and politically. The additional stimulus the Government is adding into the economy will add to inflationary pressures and likely hasten the pace at which the Bank of England raises interest rates, at a time when higher indebtedness and lower affordability mean households have less resilience. And the cumulative £45bn annual cost of the tax cuts is eye-watering, paid for not by spending cuts but with borrowing, just at the point at which government borrowing costs are rising steeply.
The political gamble is even bolder. Few voters agree in principle with the measures announced today. Voters on balance favour higher taxes and lower borrowing overall; a government that focuses on redistribution over one focused on growth; and tax cuts for working families rather than businesses. These views are strongest in places like the Red Wall, and among the voters that switched to the Conservatives in 2019. The Government is trying to lead, not reflect, public opinion.
The belief is that voters will start to agree in practice when they see the results in the form of higher pay cheques and jobs and growth in their local areas. And even if it makes them uncomfortable, they may also respond well to strong, conviction-led leadership that delivers results, as they did under Margaret Thatcher. But two years is not a long time for those fruits to materialise and it could all be lost if inflation becomes entrenched.
That is the gamble the Government is making. We should all hope, for the country’s sake as much as anyone else’s, that it pays off.
Will Tanner worked for Theresa May for three years as a special adviser in the Home Office and Deputy Head of the Policy Unit at 10 Downing Street. He is now director of the think-tank Onward