In his Conference speech on Monday, the Chancellor made a great play of the hard times to come. In language that would be music to the ears of HMT fiscal hawks, he set out that it was his “sacred responsibility to future generations to leave the public finances strong and…balance the books.” The economic merits of this argument are at best questionable, when even an institution as fiscally conservative as the IMF are calling on governments to load up on debt to fund public investment. But in delivery terms, the Chancellor must realise that what he is proposing is nearly impossible.
Balancing the books will require a combination of three things; either deep cuts to spending on public services, cuts to the welfare bill or tax rises. On the first of these, the PM has already ruled out a return to austerity, and there will be no appetite in government for delivering further cuts to already strained public services. On the second, the PM has reiterated his commitment to maintain all pensioner benefits, and cuts to working age welfare already at historically low levels and at a time of rising unemployment would cast millions into deep poverty. That just leaves tax rises, which remain deeply unpopular with the Conservative base. Given the current rebellious streak in the Conservative Party there is absolutely no guarantee any tax rises at scale would get through the Commons.
It would be easy to see officials in the Treasury as behind the Chancellor’s speech, being more attuned to the needs of the financial markets rather than the politics of this proposal. However, this is simply not the case. The markets are benign, and unlike other major set piece speeches, Conference speeches are not written by the civil service. They are instead written entirely by the special advisers, not subject to the usual official clearance processes, and all signed off by No 10. So why would No 10, and the Chancellor’s acutely media conscious political team, allow him to set himself a challenge that he will almost certainly fail?
The only conclusion that I can come to, is that failure is the point. The Treasury has a long history of what it calls ‘pitch rolling’ unpalatable ideas, so that come Budget day the Chancellor can surprise on the upside by not doing the terrible thing that had previously been floated. Just look for the inevitable story about increasing fuel duty that always appears in The Sun in the months ahead of the Budget, so the paper Sun can claim victory for the white van man when the freeze is inevitably continued come Budget day. However, this feels significantly different. A Chancellor claiming that balancing the books is his sacred duty is different to floating fuel duty rises in the Sun.
I think the only winner from this is Boris Johnson. In setting the Chancellor up as the bearer of bad news, it creates the space next year for the PM to come riding to the rescue, clipping the wings of his over mighty Chancellor, and sparing the people and the party from the fiscal reckoning caused by the current pandemic. This would be the role that Johnson has always wanted to play, the popular PM spending his way out of a crisis on ‘the people’s priorities,’ and remove some of the shine from his current Chancellor at a time when many are seeing him as ready made to step into the top job. In short, this could be a master class in political strategy that will enable the PM to regain his popularity and deal with his internal and external critics. Then again, this could be another uncoordinated and unthought through pitch from a government not renowned for its competence that will come back to bite them all when tough decisions on spending need to be made next year. Time will tell.