As Chancellor, Rishi Sunak has done well so far. But will his luck run out?
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Of all Chancellors of the Exchequer, Rishi Sunak is the one of the luckiest. He is also one of the unluckiest.
The second most important position in government fell into his lap at an early stage of his stellar career. Almost immediately, he was given a unique opportunity to shine, by producing a package of measures to keep the economy afloat. His soaring popularity reflects the fact that, unlike most Chancellors, he is not taking money from people’s pockets, but putting it back into them.
But the rise and rise of Rishi Sunak may come to an abrupt end. As he conceded this week, Britain is already in the midst of a “substantial” recession. The economy shrank by 2 per cent in the first quarter of 2020; the second will be incomparably worse. Once the bills come in for the furlough scheme and many other items of public spending, the annual deficit is certain to balloon by anything from £200 billion to more than £500 billion. Such subsidies are unsustainable, but once the Chancellor turns off the tap, he could quickly find himself go from hero to zero. If the economy continues to tank and the recession resembles an “L” rather than a “V”, the buck will stop with him.
It is hardly surprising, therefore, that Sunak has postponed the evil day when the Government stops paying the country’s wages. He has already risked the wrath of employers by asking them to contribute to their staff costs from July, by which time some — notably in the hospitality industry — will only just have been permitted to reopen for customers. But a prudent custodian of the public finances knows that he must at all costs prevent business from becoming accustomed, even addicted, to the flow of largesse from the state’s coffers. Emergency measures are for national emergencies, not opportunities for revenge on the taxman.
Chancellor Sunak also knows that there are limits to the sums he can borrow. The UK’s precious credit rating has already taken a battering and foreign loans cannot be eroded by debasing the currency. There is talk of treating the cost of this crisis like that of a war, to be paid off over many decades. If that proves to be possible, it may indeed be the best solution, but the cost of interest and repayment will weigh heavily on future generations. The debts incurred during the Second World War were only settled some 70 years later, during George Osborne’s tenure at the Treasury.
In the short and medium term, there will be a price to pay. Expensive projects with dubious benefits, such as HS2, may well be cancelled. Health spending has mushroomed and is unlikely ever to come down again. Nor should it: the NHS was woefully underprepared for a pandemic. But the additional public funds must be spent more wisely and supplemented by private insurance wherever possible. The crisis has shown what can be achieved by integrating the NHS and private health providers. This experience should form the basis of a new, more creative partnership. The same is true of the social care sector. Covid-19 has pushed the present system to its limits; the NHS has coped but in the eyes of the world, Britain has been found wanting. Once the virus has been beaten, Matt Hancock will have a similarly daunting task on his hands to reshape the health and care systems to meet the needs of a sadder but wiser nation. As soon as he takes on vested interests in the medical professions, his popularity, too, will suffer.
It has been quite a baptism of fire for the Prime Minister and his Cabinet. Some ministers, notably Sunak and Hancock, have risen to the challenge. Others, such as Michael Gove, have been effective behind the scenes. Others, less impressive, will have to be replaced, once phase two of the lockdown is complete. But this crisis has Boris Johnson ’ s name all over it. Having been to Hell and back, he has emerged as a more embattled figure. Many erstwhile supporters have now joined his already numerous enemies. The next six months will determine whether this Prime Minister, like the country he leads, will be a lame duck, or is capable of recovering, stronger than ever. As the battleground shifts from health to the economy, he will depend increasingly on his Chancellor. Like Napoleon, who demanded that his marshals enjoy good fortune as well as good judgement, Boris will need Rishi to be lucky. So will the country.
