In January 2000, Tony Blair made a surprise pledge that the UK would reach the European average for health spending. Gordon Brown, the then Labour chancellor, was so incensed, it was widely reported, that he told Mr Blair: “You’ve stolen my fucking budget.” Mr Brown had good reason to be peeved. He wanted praise for rescuing the health service, and public support for his tax-and-spend policies. Yet when, in June this year, NHS England published its welcome long-term workforce plan, there was pin-drop silence about how the £50bn scheme would be funded. Paul Johnson of the Institute for Fiscal Studies says that “arguably the next 15 effing budgets have been stolen”.
The politics of the Tory party lie behind the veil currently being drawn over fiscal decisions. Rishi Sunak has been either chancellor or prime minister during a parliament that has seen UK taxation at its highest level since records began 70 years ago. Mr Sunak’s decision in 2021 to freeze income tax thresholds helped the Treasury to reap about £100bn a year in extra taxes.
Mr Sunak wants to be known as a tax cutter, but the evidence suggests that he does not deserve such a title. With notable chutzpah, Liz Truss – whose tax-cutting agenda detonated her short-lived role as prime minister – is now calling for Mr Sunak to lower levies on business, and winning support from Conservative MPs. The danger from Ms Truss is not of a political comeback but that she potentially exposes Mr Sunak to fellow Conservatives as a Tory who values “balanced budgets” over lower taxes.
Despite the higher tax take, the NHS is going backwards, prisons are falling apart and sewage is being pumped into rivers. Mr Sunak is spending more on public services. But Covid, higher inflation and a decade of spending cuts have whittled away at the state’s ability to function effectively. Debt interest in 2023 will eat up around a tenth of government spending – £110bn, a sum bigger than every department budget apart from health. Mr Sunak is on the hook for the money because the high cost is down to inflation not dropping fast enough.
The Conservative electoral coalition is built around home-owning voters who are either retired or close to retirement. Margaret Thatcher, revered as a tax cutter, drew far more support from the working-age population. That perhaps explained why her governments constantly reiterated the trade-off between taxation and welfare spending. The problem, for a Tory party that says it wants low taxes, is that older voters do not want cuts in NHS, pensions or social care spending.
But scrapping or significantly postponing the section of the HS2 rail line between Birmingham and Manchester would undermine Mr Sunak’s pledge to make “long-term decisions for a brighter future”. The prime minister could, like Ronald Reagan, cut taxes and learn to love deficits – and higher government debt ratios. In August alone, the state spent £12bn more than it got back in taxes. But Mr Sunak sees his fiscal orthodoxy as a dividing line not only between him and his internal party rivals but also with Labour. Without unlocking growth, Mr Sunak faces being a high-tax politician who fails to spend the money to fix Britain, at a time when the public expect more from the state now than in decades past. No wonder the prime minister is courting unpopularity.
