20 November 2020

Why cutting spending may not be as easy for Rishi Sunak as it was for George Osborne

The Chancellor believes we need to cut public spending immediately to deal with the Covid-19 economic wreckage. But he faces three obstacles.

By Stephen Bush

The axeman returneth? Rishi Sunak is mulling over a return to the public sector pay freeze for all state employees outside the NHS, according to multiple outlets.

Of course, for many parts of the state, austerity never ended. It continues to take place across local government and large parts of the public realm; the difference is that it has been thrown into reverse in voter-friendly parts of the state – schools, the police – while the NHS, which has never directly experienced cuts but has experienced greater pressure due to cuts elsewhere, has received ever-larger financial settlements to compensate. (That said, dealing with the consequences of the 2010-20 cuts by increasing NHS spending is the policy equivalent of dealing with a sinking boat by buying a gold-lined bucket to bail it out with: it might look good, but it does little to tackle the actual problem.)

Sunak believes the way you tackle a crisis of this nature is to start cutting right away – to worry about the debt sooner rather than later. But he has three difficulties: the first is that this position is contested, to put it mildly, by economists. The second is that one reason political consent for austerity began to unravel after 2015 is that there is little left in the way of spending cuts to make which don’t begin to make themselves felt on the Conservative electoral coalition. The 2010-5 approach, in which the pain fell outside the Conservative voter bloc, may no longer be possible.

Can the Tory Party grit out wins by cutting spending for the working-age population and maintaining considerable largesse for the retired? Perhaps, but it is difficult, particularly if the affluent young continue to be electorally motivated by Brexit at the next election.

The third difficulty for the Chancellor is his Prime Minister. There is a lot to be said about yesterday’s announcement on defence spending, but the unnoticed aspect is that it was a remarkable act of political sabotage from Number 10 against Number 11: Johnson got to announce the big and expensive bit of good news, leaving Sunak with only bad news to deliver next week. It’s an inversion of the relationship during the pandemic, when Johnson would deliver big speeches about transforming Britain, but the significant announcements were all kept by the Chancellor.

Sunak, an Osborne protégé, will hope he can survive and thrive politically for as long as Osborne did before the electoral consequences of the cuts became an issue for him in the 2016 referendum and the inconclusive election of 2017. But the policy conditions are not what they were, and neither does Sunak have as reliable a Prime Ministerial ally as Osborne did.