Advice for the new Chancellor

As Rishi Sunak scrambles to deliver his first budget on March 1, he will receive plenty of advice to help him with this unexpected challenge. Some want to clobber the rich with tax increases, especially those who live in “mansions” for instance, or those with private pensions. Bashing online retailers would produce a few cheers. Others fret that while this might get favourable coverage it would damage the economy and reduce revenue.

Then there are proposals for cutting tax. The Conservative manifesto pledged to ensure that “the first £12,500 you earn is completely free of tax” — which would mean raising the threshold for national insurance contributions as well as income tax. There was also a promise to cut business rates, to ease pressure on high streets shops and local pubs. Then there is the matter of honouring the manifesto pledge to cut the tax on Scotch whisky.

We have had so many promises and proposals for spending increases that I will not attempt to list them. But the manifesto included increases for the NHS (“Between 2018 and 2023, we will have raised funding for the NHS by 29 per cent”), schools (“an extra £14 billion in funding”) defence (“an increase of the budget by at least 0.5 per cent above inflation every year of the new Parliament”). There was also “£100 billion in additional infrastructure spending — on roads, rail and other responsible, productive investment.”

At the same time, there was the undertaking that “debt will be lower at the end of the Parliament,” a promise that has the potential to restrain further borrowing.

So how will it be possible to have lower tax, extra spending and reduced borrowing? The main answer is that it relies on a growing economy. If we are earning more then tax revenues could rise, even while tax rates fall. Yet, as we know, trying to predict the level of economic growth is a tricky business. There are so many circumstances beyond our control. What if the EU refuses us a free trade deal? Or Donald Trump does? Or both do? Or if there is another banking crash?

The good news is that Sunak does have other options. One is to do far more selling of surplus state-owned land. The Ministry of Defence has claimed to own a mere 600,000 acres — an area the size of Surrey. However, according to Sir Oliver Letwin, who as the Cabinet Office Minister tried to secure some sales, the tally is much bigger, with total landholdings “approximately equal to the size of Wales”.

In his memoirs, Hearts and Minds, he says: “There was roughly as much land held to support the activities of a couple of hundred thousand army, navy and air force personnel as there had been when we had about ten times as many people under arms in the Second World War; there were numerous golf courses, riding stables and other appurtenances that seemed to serve no obvious military use; and so it went on.” Yet there were endless excuses about resisting calls to release of the land. His discussions with Network Rail also resembled “Yes Minister,” scripts. Very little has been achieved. I don’t blame Sir Oliver. He did not get the backing he needed.

Yet if there were the political will to dispose of and allow housing development on just five or ten per cent of state land, the proceeds would be huge. It would make picking up the £100 billion infrastructure bill look like loose change. A big chunk of the national debt could be cleared. That would also help to cut spending as, according to the Office for Budgetary Responsibility, “interest payments on the national debt are expected to cost £51.1 billion in 2019-20”.

At the same time it would solve the housing crisis as the substantial increase in supply would make buying and renting much more affordable propositions.

I find it baffling that greater priority has not been given to this.

However, there are alternatives. The state spends £841 billion a year. If there is a wish to spend more in some areas then there could be savings elsewhere. We are already due to stop paying money to the EU after this year. Further welfare reform could be another big item. But there are also smaller areas worth looking at. Over £2 billion goes on legal aid — our spending on it is far higher per capita than in other countries. Half a billion goes to the Arts Council, but do the subsidies really improve what is performed in our theatres and concert halls?

With a billion here and a billion there, before long you are talking about real money. Over £200 billion a year is spent by “public bodies”. That figure includes NHS trusts. But there is plenty of scope to axe many of these meddling bodies, with their highly paid officials and bloated budgets.

One final tip I would offer the Chancellor. There has been an estimate by the Institute for Economic Affairs that the cost of tax collection in the UK is £5 billion a year, high compared to other countries. Simplification of the tax system would reduce collection costs to the state and accountancy bills for businesses and private individuals.

Decisions to spend more on some items but less on others are not terribly remarkable. Most of us do this routinely when working out what we can afford. Let us hope Sunak is equally open to such down-to-earth calculations.