A lot of politicians – mainly opposition ones – have been calling urgently for the Chancellor of the Exchequer to deliver an emergency budget. It’s barely a few months since Rishi Sunak delivered his budget so why do we need another one so soon after?
Ostensibly, the reason is the dramatic change we are seeing in terms of the economic outlook. Inflation has risen faster and further than initially expected and is expected to go further still. This is currently affecting food and fuel prices. We’ve also seen signs that the economy might go into recession. This will potentially lead to bankruptcies and job losses. The outlook is gloomy and we might expect the cost of living crisis to worsen.
Therefore, there is pressure on the Chancellor of the Exchequer to do more to help the economy and individuals. Depending upon where people lean politically suggestions include:
- Using a windfall tax on fuel and energy companies to direct money towards the hardest hit.
- Increasing benefits including the State Pension
- Enforcing a stricter cap on energy prices.
- Cutting income tax by the equivalent amount that increased prices are costing people.
- Reversing or at least postponing the recent National Insurance Increase.
- Cutting fuel duties, VAT and business taxes.
Now at this point you’ll realise that there is of course a bit of politics going on because for a lot of the politicians involved, this isn’t about introducing unexpected emergency changes that we’ve suddenly realised were necessary. Rather, although they may consider vindicated by circumstances, these were the policies they have been advocating for a long time and would have wanted to see in the original budget. They really want Rishi to stand up at the dispatch and say “okay I got it wrong” and to do a U-Turn.
There are a few problems with that in addition to the fact that a politician is very unlikely to stand up and say “I got things drastically wrong only a month or two back.” Now of course, in a better world, politicians would have the grace to say that they got things wrong and their opponents would equally have the grace and humility to respect that.
However, there are further issues. For what it is worth, I think that the Chancellor has got some of the big questions wrong over the past few years. I think there’s a growing consensus on that. But when we try to identify in which direction he got things wrong, the consensus breaks down. If you are left leaning then you are likely to think that he didn’t borrow enough, didn’t tax the rich enough and didn’t offer enough financial help to those who most needed it. You will point to the fact that so many people are struggling to make ends meet. If you are right leaning, you’ll agree that people are struggling but you’ll argue that the very reason for this is because of increasing costs, you’ll argue that the Chancellor borrowed too much, taxed too much and allowed too much money to go into the economy through quantitative easing and public spending so contributing to higher inflation.
This then is the Chancellor’s dilemma. He must surely see that people are already struggling and are worried about the future. The problem is that decisions now may help some in the short term but may cause longer term damage by further fuelling the problem. There is an argument that sometimes the best thing to do in a crisis is to stand still and do nothing.
My personal inclination is that Rishi Sunak should hold off on short term emergency measures and focus on the longer term. I think he has a little bit of a window to pause and review because whilst the biggest pressure is on fuel bills, the summer period means that people will be less dependent on oil and gas due to the warmer weather. We need to be thinking ahead to the winter. This does mean that when he makes his next big statement in the Autumn, he may well need to make some big decisions as he responds to what looks like a much longer-term challenge.