Socialist Sunak not really a conservative Chancellor... but at least he avoided the populist MMT trap When Rishi Sunak stood at the dispatch box on Wednesday 3rd March, most of what he had to say had already been widely leaked – some of it was even on the BBC News website. There was nothing much of any great interest. When a politician says that he is going to be honest with the electorate, honesty is the last thing to expect. He had frozen alcohol duty while all the pubs were shut and frozen fuel duty while everyone is driving nowhere. The usual inflation plus two per cent on tobacco is symbolic small change. Economic trifles. It does not matter whether you are conservative with a small or a capital C as this Budget represented neither. In the last Tory manifesto there were the usual commitments to not raising income taxes and whilst Sunak stuck to the letter of that, he did not really enter into the spirit of it by freezing tax thresholds until 2026. Firstly this will result in more low paid workers being pulled into income tax. That is in effect a tax rise equivalent to inflation; and anybody lucky enough to get a pay rise could get bumped into the top tax bracket. The Institute for Fiscal Studies already estimates that one in six people will be in the top tax bracket by 2026. A visitor from Mars could be mistaken for thinking that 10 Downing Street was occupied by Jeremy Corbyn and 11 Downing Street was home to John McDonnell. The Chancellor has signalled that his direction of travel is towards the social-democratic almost growth free stagnation that plagues much of Europe with big state intervention. If the Tories have now become big state spending, Labour are finished but personal taxes will have to rise to fund it. Pandemic measures have seen fiscal responsibility disappear out the windows as billions were spent on paying people to stay at home, an extra £60 billion of health spending; and completely brain dead schemes like the billions on a Track and Trace system that does not actually work and fortunes wasted on Eat Out To Help Out – paying people to spread the plague in restaurants that will go bust anyway. Nobody will be complaining about the government buying vaccines at any price as the EU’s bureaucratic torpor has resulted in insufficient vaccines across the continent. When the numbers are added up at the end of the tax year in April, public spending will have exceeded £1.1 trillion and tax receipts will have plummeted. There is a theory that Sunak’s increase in corporation tax will see big business look to reduce their tax bill by reinvesting profits into expanding their businesses, creating employment and boosting the economy. The opposing view is that his measures will make capital more expensive, stifling business investment, as he has introduced a two year deduction for capital expenditure. That is just robbing Peter to pay Paul; bringing forward future investment hoping that will ease the inevitable unemployment post Pandemic. Politically, he knows that the only ally of business is the Tories but the economy needs business not politics. He has also ignored the distinct possibility of high inflation caused by central banks (especially the US Federal Reserve in the Biden Presidency) printing money to try and get themselves out of a debt crisis of their own making. Even a devoted Conservative economic historian can probably not remember the last time that a Tory Chancellor raised corporation tax. In 1979, Geoffrey Howe slashed it; in 1984, Nigel Lawson took it down by another third; and that 35 per cent rate has fallen ever since with George Osborne the last to cut it. History has shown that lower rates of tax have created more economic growth and thus more tax revenues. Despite having the lowest rate of corporation tax of any major European economy, the Exchequer still raked in more funding from that tax than France or Germany. By 2026, the UK corporation tax rate will be in the middle of the OECD list, making the UK less attractive for business investment; and lower profits will mean lower dividends that will impede pension funds that are already suffering because of low interest rates on bonds. Since the beginning of Thatcherism, Conservative policy has always been to reduce direct income taxes (allowing people to decide how to spend their money) and increase stealth taxes (pay more tax as you consume). It seems that Sunak has become a fan of big government, inefficiently running everything from the centre. The public sector is the home of low productivity and low wages, so over time the tax burden on the private sector will have to rise to make up the shortfall in expenditure – and pay off some of the trillions of National Debt after a year of uninhibited money printing. There were those in the thrall of Modern Monetary Theory (the Magic Money Tree) who wanted Sunak to just start spending money, especially if that spending was directed at Boris Johnson’s latest buzz phrase of “levelling up the country” – throwing money at any old infrastructure project North of Watford, such as electrifying the railway between dead-end Post Industrial Liverpool and Kingston upon Hull because slow old trains are holding back the economy. Quantitative Easing has never worked as the miracle cure ultimately kills the patient. Polling after the Budget showed that the Conservatives now had a 13 per cent lead over Labour; and that 52 per cent approved of it or thought it was ‘fair’. As usual, the public are in favour of tax rises when they think that somebody else is picking up the bill not them. The public at large really are that stupid.