Sunak Vows to Guard U.K. Finances in Overture to Tory Faithful
Chancellor of the Exchequer Rishi Sunak said it would be “immoral” to rack up more debt, underscoring his pledge to guard the U.K.’s finances in front of a packed conference crowd in Manchester on Monday.
But as the man tipped as a future party leader presented his plans to navigate the economy’s recovery from the pandemic, it was perhaps no surprise that he opened by acknowledging the presence of his “friend” Prime Minister Boris Johnson in the audience.
He also set out his stall as the type of Conservative many grassroots Tories like: fiscally cautious, prioritizing hard work over welfare payments and unequivocally backing business. As pressure builds over a cost of living crisis driven by surging energy prices and the ending of pandemic support measures, Sunak made clear he doesn’t see the answer in accruing more debt.
“Just borrowing more money and stacking up bills for future generations to pay is not just economically irresponsible, it is immoral,” Sunak said. “We need to fix our public finances, because strong public finances don’t happen by accident. They are a deliberate choice. They are a legacy for future generations.”
Sunak is trying to restore order to the nation’s coffers after a year in which the Treasury spent some 352 billion pounds ($479 billion) to fight Covid-19 and protect businesses and jobs. That pushed Britain’s debt up to almost 100% of economic output and led to a peacetime record budget deficit.
The chancellor also defended the government’s decision to raise taxes to fund improvements to health and social care, both battered by the pandemic.
Yet his choice of language will likely infuriate prominent Tory MPs, who say the move to raise taxes ran against the party’s principles. Jacob Rees-Mogg, the leader of the House of Commons, told an event at the Conservative Party conference in Manchester on Sunday that tax has hit “the limit.”
Another theme among political watchers in Manchester is the jostling for position in Johnson’s newly reshuffled cabinet. Sunak himself has long been regarded as the front-runner to replace Johnson -- whenever the time comes.
In that context, one of Sunak’s lines raised eyebrows: “Anyone who tells you that you can borrow more today and tomorrow will simply sort itself out just doesn’t care about the future.”
That was seen as a reference to Foreign Secretary Liz Truss, who, the Independent newspaper reported last month, had suggested in a cabinet meeting that the money to fund social care reforms could be found from borrowing. Fresh from her promotion from the trade department, Truss is now regarded as a Sunak rival.
“Yes, I want tax cuts, but in order to do that, our public finances must be put back on a sustainable footing,” Sunak said.
Earlier, Sunak told Sky News he can’t rule out further council tax increases to pay for social care, after the central government announced plans last month for a new 1.25% levy to fund health and social care.
U.K.’s Sunak Says He Can’t Rule Out Further Tax Increases
The Local Government Association has said council taxes might have to rise because of higher costs for looking after the elderly, disabled and long-term sick. Asked whether he could guarantee there won’t be increases after warnings of a potential jump of 9%, Sunak told Sky News “I wouldn’t, I wouldn’t, I can’t, I can’t.”
With the U.K. tax burden at historically-high levels, the prospect of further increases threatens to eat into the disposable income of Britons at a time when energy and food costs are already mounting and consumer spending is needed to keep the U.K.’s recovery on track.
While the chancellor focused his speech on the importance of job creation, he also flicked at the rising cost of living and a supply-chain crisis that has left supermarket shelves empty and gas stations without fuel.
Inflation is predicted to hit double the Bank of England’s 4-percent target in coming months, and just last week, a cap on household energy bills jumped 12%. The flagship furlough program that protected millions of jobs has also now ended while the Treasury is scrapping a 20 pound-a-week uplift in Universal credit social security payments for low-earners and the unemployed.
In another nod to grassroots Conservatives, Sunak said the solution is not to encourage people to “lean ever more on the state,” but rather to focus on “better skills and higher wages.” He also referenced former Chancellor George Osborne, the architect of the U.K.’s most recent package of government spending cuts.
Sunak, who described himself as a “pragmatist” who believes in fiscal responsibility, also left one thing out of his speech that’s a Johnson priority: tackling climate change. That, again, will likely do him no harm with the party faithful.
©2021 Bloomberg L.P.