Lucy North/PA
It is painfully obvious in looking at the current forecasts used by the Chancellor that they are kicking the can down the road on a lot of essential government spending in order artificially to create “headroom” for tax cuts when on a more realistic assessment of what the government will need to spend no such headroom exists. The same applies to forecasts of tax revenues, with, for example, the assumptions always being made as to the fuel duty escalator that do not reflect that the government inevitably does not apply it.
The whole methodology behind the spending straitjacket is now under attack from economists from a range of think tanks, on the basis that the rules as drafted needlessly stifle growth by penalising investment that is needed for growth. As an example, the senior economist at NIESR comments: “During economic downturns, these rules disproportionately favour reductions in investment expenditure as they demand improvements in the debt-to-GDP ratio within a relatively short time frame. This can hinder an economic recovery and limit potential long-term growth.”
Similarly, James Smith, research director at the Resolution Foundation comments that the methodology has “encouraged £26 billion of growth-sapping cuts to public investment”.
This brings into focus one of the most mind-bogglingly bizarre decisions of the Sunak premiership: the decision to terminate HS2 at Old Oak Common rather than at Euston. It leads to the madness of spending an estimated £50 billion to build an underground railway between West Ruislip and Birmingham. Surely no sane government would regard that as a sensible plan, but on the face of it that is what they are doing.
Now note that the official fig-leaf is that private money will be needed to fund the extension into Euston station. Herein is the clue: they are not mad enough to actually believe that HS2 should or will be built such that it terminates at Old Oak Common. They know this will have to be built. They just don’t want to say that the government is going to pay for it as this would add the cost to the forecast and reduce the scope for pretend tax cuts.
But they know that this is not true. Doubtless, there may be some money to be found from the private sector or from taxing property value uplifts, but they also doubtlessly know that the idea that the route through into Euston will be entirely or mainly paid for from such sources is for the birds.
They know that the Euston works have to be done – HS2 is otherwise a railway without a point – and they know that state funds will be needed. Yet by pretending they get to exclude the cost of taking HS2 to Euston from the forecast. This then reduces the overall expected government expenditure to create the illusion of headroom. These false forecasts then enable them to make tax cuts which are in any event fake themselves as they are swallowed up by no increases in allowances.
And the real-world effect: desperately needed investment in creaking infrastructure gets delayed, the whole thing ends up costing more in the end and the economy does not get the investment injection when it most needs it, which is now. And to think this was supposed to be a government defined by integrity.
Related: Armando Iannucci derides Tory policies which ‘are putting more people into poverty’
