6 July 2022

Rishi Sunak leaves a legacy of economic confusion

The pandemic prompted a chancellor who believes in a small state to spend like never before.

It can’t have been easy being Rishi Sunak over the past two and a bit years. The legacy left by the former chancellor, who dramatically handed his notice in yesterday, is presumably not what he had in mind when he was appointed to the role in February 2020.

On 20 March 2020, three days before the UK entered full lockdown, Sunak – then still a relative unknown – announced what remains his most successful policy: the Coronavirus Job Retention Scheme, aka the furlough scheme, which earned him a reputation as a safe pair of hands – while the accompanying photographs of him, sporting a grey hoodie and working diligently at his computer, earned him the nickname “Dishy Rishi”. By the time it was suspended 18 months later, the scheme had cost the government £70bn, but was credited with having supported 11.7 million jobs. Such enormous economic interventions weren’t traditionally Conservative, but these were Unprecedented Times.

As those Unprecedented Times continued, Sunak, a former Goldman Sachs banker and a self-described fiscal conservative, pressed on with spending that would have made John McDonnell blush. He launched the Covid loan guarantee schemes, which are thought to have saved 500,000 businesses and perhaps as many as 2.9 million jobs, but cost the government £5bn in fraudulent claims as a result of the hasty way they were drawn up. They also cost Sunak a minister: in January this year, Lord Agnew, a Treasury minister and Cabinet Office minister, resigned in protest over “schoolboy errors” in the oversight of the scheme.

Eat Out to Help Out, another costly policy, was launched in August 2020. It was supposed to be the jewel in Sunak’s crown: an ingenious scheme designed to encourage lockdown-addled consumers back onto Britain’s streets and save the hospitality sector in the process. Instead, it led to the infamous “When is a meal a substantial meal?” debate (answer: when it’s a Scotch egg), added £840m to the government’s Covid tab, drove another wave of infections – and is thought to have had “limited effect” on hospitality businesses’ survival.

Sunak’s time at No 11 was a period in which the sums discussed were so large they took on a sort of amorphous quality. In its panic to get the economy back on track, the government threw £37bn at the ill-fated Test and Trace scheme, which included £1,000-a-day fees to private consultants. (The Public Accounts Committee later said there was “no clear evidence” it had driven down infections.) The government also unleashed the so-called “pingdemic”, which led to chaos in many industries. Meanwhile, a 1 per cent pay rise for the NHS workers who had endured the pandemic – equivalent to about £900m – was described by the Prime Minister as giving them “as much as we can”.

As the effects of the pandemic wore on and it became clear that the shock to the economy was likely to be sharper and deeper than anticipated, Sunak began to return to his economic principles, rejecting the high spending that had earned him the nickname “Red Rishi”. His 2.5-percentage-point increase to National Insurance was the sharpest since 1975, and businesses were incensed: the British Chambers of Commerce described it as a “body blow” to the companies it represented, while the Institute of Directors’ Roger Barker has said it is “consistently” one of the issues its members mention the most. The tax was expected to raise £12bn, a third of the cost of Test and Trace. Meanwhile, Sunak began to get his way: data indicated public borrowing fell £13bn in the financial year to December 2021.

As the economy turned sour and inflation climbed, Sunak and his boss increasingly came to blows over ongoing economic interventions, including a £5bn windfall tax on energy companies (widely seen as a Labour policy) and financial help to households struggling with the cost-of-living crisis. In May this year, Sunak grudgingly, and belatedly, delivered both policies, the latter in the form of a £650 one-off payment to households. The measures, his critics said, removed the dividing line between Labour and the Conservatives. “Rishi Sunak only really seems to suit being a Labour Chancellor,” wrote the New Statesman’s Anoosh Chakelian. “When Sunak tries to be a Tory Chancellor, it’s all scandals over his family’s tax affairs, ‘different breads’, enforced loans and insisting on hiking National Insurance to pay for health and social care.”

In his resignation letter to the Prime Minister, Sunak wrote: “We both want a low-tax, high-growth economy, and world-class public services, but this can only be responsibly delivered if we are prepared to work hard, make sacrifices and take difficult decisions.” He is now one of the frontrunners to replace Johnson as PM. If that happens, we can expect radically different economic policies to the many compromises of “Red Rishi”.