Critical budget for Sunak’s prospects

Refill the Covid depleted coffers or protect families from a severe cut in their living standards? Jim looks forward to the Chancellor's choices in next week's spring statement

Jim Hancock

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RISHI AT THE WHEEL

This could be make or break week for Rishi Sunak’s ambitions to be the next prime Minister.

Respond flexibly to the enormous challenges presented by the Ukraine war and rises in energy costs, and he will still be seen as the coming man. However, he is under pressure from the Treasury to refill the nations coffers, depleted by the pandemic. He may be tempted to go with Tory right wingers already in despair at the high spending, high taxing ways of Boris Johnson. He may offer little in the way of relief to hard pressed consumers and business. This may lead to grim results in the local elections and the party looking elsewhere than hard hearted Rishi for its next leader.

There is at least one alternative available. The Foreign Secretary, Liz Truss, has done herself no harm in gaining the release of Nazanin Zaghari-Ratcliffe.

WHAT WILL THE CHANCELLOR DO?

Downtown’s MD Frank Mckenna is far from a lone voice in calling for a careful look at our Cop 26 commitment to Net Zero. However, the ink is hardly dry on the pledges made when climate change was seen as a major threat to the whole planet’s future. There would be a considerable backlash, especially among young voters, if the Ukraine war was used as an excuse to backtrack on those hard negotiated agreements.

These spring statements are intended to bring minor adjustments to the substantial budgets in the autumn but the massive rise in energy prices, supply issues, the damaging consequences of Brexit and inflation forecasts of 8%, make this a much more important event. Families could be £1000 a year worse off. This is big politics.

Much attention has focused on the hike in National Insurance contributions. Observers have noted that public sector borrowing is £13bn less than forecast and could be used for a year’s delay.

There are calls for a more generous energy rebate (and not in the form of a loan), changes to the universal credit taper and even a 5% increase in benefits and pensions. A cut in fuel duty has widespread support from business and motorists.

The CBI would like to see the super deduction on money spent on machinery, which is due to end next year, extended permanently. It forecasts it would boost business investment by £40bn by 2026.

In terms of raising tax to pay for any of this, there may be a temptation to put a windfall tax on the oil and gas companies. But the Chancellor needs their help in energy investment so killing off the goose may not be in his mind. Changes to Capital Gains Tax and the pension tax relief are also discussed.

This is the testing time of Rishi Sunak.

PEACE AT WHAT PRICE?

Meanwhile the awful carnage continues in Ukraine. I fear the outcome will not recognise the brave stand of the Ukrainian people.

A Ukraine pledge never to join NATO and possibly the EU. A recognition of Russian occupation of Crimea and the Donbas seems to me the minimum Putin will settle for. Aggression will be seen to have won and any Russian pledge not to start the pressure all over again will mean little. Severe sanctions must be maintained by the West whatever the peace deal to induce a change of regime in Russia.

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