London Daily

Focus on the big picture.
Saturday, May 31, 2025

Rishi Sunak offers spending now – and signals tax cuts later

Analysis: Economic growth enables budget giveaways, but chancellor’s plans could go off course
Up until the last few minutes of his third budget it was hard to distinguish Rishi Sunak from Gordon Brown in his pomp. The hour-long address was peppered with spending pledges on everything from schools to prisons, from theatre refurbishment to community football pitches.

Then, as the peroration approached, the real Sunak emerged as he launched into a statement of his belief in a Britain where taxes are lower and the state is smaller. The chancellor could hardly have been clearer: he intends to get taxes down before the next general election.

This channelling of Sunak’s inner Nigel Lawson was given substance by one of the few measures not trailed in advance: the decision to reduce the taper rate for the withdrawal of universal credit from 63% to 55%, which will allow low-paid workers to keep more of what they earn before their benefits are cut.

While it only gave back a third of the money raised, this was a tacit admission that the decision to scrap the £20 a week increase in UC announced at the start of the pandemic was a mistake. It was also intended to show the government’s planned direction of travel.

Sunak felt the need to provide his colleagues with some reassurance that the spirit of Margaret Thatcher was alive and well in the Conservative party because – as the Office for Budget Responsibility noted – his two budgets this year have raised taxes by more than any chancellor since the two Norman Lamont and Ken Clarke budgets in 1993.

To be sure, there were tax cuts in the budget – the crowd-pleasing cuts in alcohol duties, the customary freezing of fuel duties for motorists, and a business rate discount for the hospitality, retail and leisure sectors among them.

But these followed two whopping increases in taxes already announced: the post-dated increase in corporation tax in March and the rise in national insurance contributions (NICs) announced in September.

The OBR says the result is that taxes as a share of national output are the highest since the end of Clement Attlee’s premiership in the early 1950s while spending is back to levels last seen in the late 1970s.

Sunak is able to offer more spending now while promising tax cuts later because the economy is doing better than the OBR envisaged in the spring. Growth is higher and – crucially as far as the public finances are concerned – the OBR’s estimate of the amount of long-term damage to the economy caused by the pandemic has been reduced from 3% to 2% of gross domestic product.

Add in the money raised from NICs and the chancellor had about £50bn of resources to deploy in this budget. Of this, the chancellor spent about £30bn – giving more money to the NHS and Whitehall departments – and banked the rest. The OBR estimates that he can meet his fiscal rules – to have debt falling as a share of national income and to avoid borrowing for day to day government spending – with up to £25bn to spare.

The Treasury says a prudent approach is needed, because every one percentage point on inflation and interest rates adds $25bn a year to the cost of servicing the government’s £2tn-plus debt. It also says the lesson from history is that most recessions cause scarring of more than 2% of GDP.

What could go wrong? Well, apart from a new wave of the pandemic, the risk is that the economy slows and inflation picks up. Sunak was bullish about the economy’s prospects but the OBR said growth was slowing and inflation would hit 4.4% next year. Even a mild dose of stagflation would blow the chancellor off his tax-cutting course.
Newsletter

Related Articles

0:00
0:00
Close
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
U.S. Justice Department Reduces American Bar Association's Role in Judicial Nominations
U.S. Department of Energy Unveils 'Doudna' Supercomputer to Advance AI Research
U.S. SEC Dismisses Lawsuit Against Binance Amid Regulatory Shift
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
Italy Faces Population Decline Amid Youth Emigration
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Trump Accuses China of Violating Trade Agreement
Gerry Adams Wins Libel Case Against BBC
Russia Accuses Serbia of Supplying Arms to Ukraine
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
Chinese Woman Dies After Being Forced to Visit Bank Despite Critical Illness
President Trump Grants Full Pardons to Reality TV Stars Todd and Julie Chrisley
Texas Enacts App Store Accountability Act Mandating Age Verification
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Vatican Calls for Sustainable Tourism in 2025 Message
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Trump Threatens 25% Tariff on iPhones Amid Dispute with Apple CEO
Putin's Helicopter Reportedly Targeted by Ukrainian Drones
Liverpool Car Ramming Incident Leaves Multiple Injured
Australia Faces Immigration Debate Following Labor Party Victory
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Macron Dismisses Viral Video of Wife's Gesture as Playful Banter
Cleveland Clinic Study Questions Effectiveness of Recent Flu Vaccine
Netanyahu Accuses Starmer of Siding with Hamas
Junior Doctors Threaten Strike Over 4% Pay Offer
Labour MPs Urge Chancellor to Tax Wealthy Over Cutting Welfare
Publication of UK Child Poverty Strategy Delayed Until Autumn
France Detains UK Fishing Vessel Amid Post-Brexit Tensions
Calls Grow to Resume Syrian Asylum Claims in UK
Nigel Farage Pledges to Reinstate Winter Fuel Payments
Boris and Carrie Johnson Welcome Daughter Poppy
×