Jam tomorrow but no jam today. As devotees of Lewis Carroll know, that was the credo of the White Queen in Alice Through the Looking-Glass.
Plenty of chancellors of the exchequers have adopted the frugal Red Queen approach but so far Rishi Sunak has not been one of them. He has spent an extra £280bn since the Covid-19 crisis began and is on course to preside over a budget deficit of £394bn this year – comfortably a peacetime record.
While spooning out large dollops of jam today, Sunak has talked a lot about how there will be no jam tomorrow but has never quite got round to it.
The chancellor’s spending statement to the commons was, therefore a first. The jam pot has been taken away from the public sector workers who will face a pay squeeze and from poor people in the developing world as a consequence of a cut in the UK aid budgets.
But in truth, the money saved will be small change when set against the colossal spending deemed necessary to combat the economic emergency. The Office for Budget Responsibility (OBR) noted that the chancellor had averaged £20bn of extra spending in each of the 14 fiscal events since the start of the crisis: “Each of these would have constituted a substantial budget package in normal times.”
Assuming that the economy does not take further hits from fresh waves of the pandemic, spending will increase by less in the coming years and borrowing will come down. Yet even by the middle of the decade, the gap between what the state takes in taxes and what it spends will still be running at £100bn a year.
This represents a different approach to the one adopted by George Osborne when he became chancellor in 2010 at the tail end of the financial crisis. Osborne thought it was necessary to reduce the deficit as quickly as possible; Sunak, for all his tough talk, thinks the priority should be to get the economy up and running again as quickly as possible. Hence, the renewed commitment to big infrastructure spending and the new £4bn levelling-up fund.
Even so, there will be no miracle cures. The OBR’s best guess is that it will take until the end of 2022 for the economy to return to its pre-crisis level and that there will be long-term damage as a result of the recession.
Yet, Sunak would say the money has been well spent. Yes, the budget deficit is at the top end of financial market expectations. But the government is having no trouble financing its borrowing, and the money has been spent on emergency funding for the NHS and to prevent even worse scarring.
In the early 1980s, when the economy contracted by much less than it will this year, unemployment soared to double digit levels. This time, it is expected to peak at 7.5%. Still bad, but not nearly as bad as it might have been.