This is another guest article written by Hugh Lupson, a former History & Geography student at the University of Leeds
As politicians go, Rishi Sunak is a popular man. During this pandemic, whilst his colleagues have been announcing lockdowns and other such bad news, Sunak has had the enviable job of handing out free money and introducing popular schemes like ‘Eat Out to Help Out’ - which bore the Chancellor’s own personal signature. Naturally, many had predicted that Sunak’s popularity would take a considerable blow once he began trying to rein in the recent lavish expenditure, a process that was expected to begin with last week’s budget announcement. However, instead, it seems that the spending is set to continue for the time being, with austerity measures deferred for at least two years and Sunak maintaining his reputation for generosity.
Sunak’s headline announcement was his ‘super deduction’ - a 25p tax break for companies on each pound spent on business investment, allowing companies to offset 130% of the value of new investments against their taxable income for the next 2 years. According to a recent IMF study, such schemes are typically fairly effective in encouraging firms to invest. Thus, in theory, Sunak’s new ‘super deduction’ may help to reverse Britain’s historically low rates of business investment, in turn hopefully bringing the economy up to speed with developments in technology and climate policy.
Sticking with the theme of investment, Sunak announced a £4.8billion fund for the UK’s most deprived areas, as well as the injection of an extra £1billion into an already existing ‘towns fund’. Concurrently, plans have been announced to move part of the treasury to Darlington, County Durham, as the Conservatives’ promise to ‘level up’ the north begins to take shape. Developing the northern economy undoubtedly ought to be a key aim for any British government, alleviating some of the perennial issues stemming from the country’s historic north-south divide. However, for this government in particular, successfully boosting the northern economy would represent a huge coup, consolidating the former ‘red wall’ seats won in the 2019 election. Indeed, that this is at least one of Sunak’s aims becomes clear in light of the subsequent revelation that 39 of the 45 new towns fund recipients have Tory MPs.
Looking further into the future, the proposal to increase corporation tax from 19% to 25% by 2023 has also garnered significant attention. Though Sunak points out that even after the increase the UK will still have the lowest corporation tax rate in the G7, his plans have upset various figures on the right. Free market wonks such as those at the Centre for Policy Studies have argued that the proposed corporation tax hike will make the UK one of the least competitive tax regimes in the developed world – slipping to 28th of 36 on the OECD league table for tax competitiveness. Moreover, as has been the case throughout the pandemic, there is disquiet amongst the Tory backbenches, with David Davis for example warning that higher taxes could deter inwards investment. However, more astute commentators have pointed out that tax rises may not end up being as severe as suggested; depending on the success of the ‘super deduction’ in particular, the UK economy may not need a full 6% rise in corporation tax come 2023. Instead, a smaller rise may end up sufficing, which would likely come as a relief for business owners who had been expecting the full 6%. Were things to play out this way, Sunak could expect his popularity to soar, and it is not difficult to imagine where he might hope that popularity will take him.
Finally, the Chancellor’s personal ambitions aside, the latest budget and its largely positive reception may represent a leftwards shift in attitudes towards the role of the state. It might be surprising to hear that several of Sunak’s new policies, including the rise in corporation tax, have been lifted from ‘Red Ed [Miliband’s]’ unsuccessful 2015 election manifesto. Indeed, the same ideas that were once derided by the right as Marxist and dangerously idealistic now seem quite reasonable - with Opinium Research reporting a public approval rate of 52% for the new budget. The pandemic has certainly had a role to play in this shift in public opinion, bringing the necessity of state support into stark relief for many people in Britain. Such catastrophic events are often credited with ushering in political and economic change; the Second World War for example gave way to the modern welfare state. Whether COVID-19 will be remembered as a harbinger for a renewed emphasis on state intervention is yet to be seen, but Britain’s latest budget suggests that it might be - at least for now.