The short-lived Truss era has ended with a whiplash-inducing return to the politics of fiscal restraint. Rishi Sunak and Jeremy Hunt, the Chancellor, have tried to manage expectations before this month’s autumn statement through talk of “eye-wateringly difficult” decisions, black holes and inevitable spending cuts. The echoes of 2010 and George Osborne’s chancellorship are obvious. Now, as then, fiscal responsibility being equated with reduced public spending serves politicians on the right, while trapping progressives in a race they’re unlikely to win. In this context, it’s vital to test both the economics behind Hunt’s policy choices and the political decisions that are too often obscured.
On the economic side, the size of the “fiscal black hole” is cited as determining whether the government can protect incomes and public services, and invest in our economy. Estimates of a £35-50bn hole have abounded in recent weeks. Yet it’s rarely explained what this number is, how it has come to be, or the uncertainties around it. In fact, these figures are a product of the fiscal rules the government has set itself; they refer to how much taxes need to be raised, or spending cut, to ensure the rules are met. Both Labour and the Conservatives have as a condition within their rules that public debt must fall as a share of GDP by a specified year. The government could choose a different metric to demonstrate fiscal sustainability, or a different year in which to achieve it.
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