Budget 2020 brings end to austerity policies with borrowing-fuelled spending

But Labour says claim it is biggest investment since 1950s is ‘sleight of hand’

Chancellor Rishi Sunak’s first Budget brought the curtain down on a decade of Conservative austerity policies with a borrowing-fuelled spending splurge which economists warned will send debt soaring above £2 trillion and may pave the way for future tax rises.

Just 27 days into his new job, Mr Sunak announced plans to pump an additional £175bn into investment in capital projects over the next five years, heralding a total spending spree of £640bn on roads, railways, houses and broadband as he declared: “If the country needs it, we will build it.”

But critics claimed that much of the spending was narrowly targeted at the populist priorities of Boris Johnson and his senior adviser Dominic Cummings, such as the NHS and prestige building projects, while providing little for those on benefits or for Whitehall spending departments, which will have to wait until the Comprehensive Spending Review this summer to learn whether they have any real respite from years of belt-tightening.

Despite a new tax on plastics packaging and a £1bn investment in green energy, environmentalists denounced the announcement of billions for new roads and the continued freeze on fuel duty as “truly awful”, warning it risked forfeiting the UK’s global leadership role ahead of November’s UN climate change summit in Glasgow.

The fight against coronavirus overshadowed a Budget initially designed to make good on Mr Johnson’s election-time promises to “level up” the country, with Mr Sunak forced to announce a £12bn package of support for those affected by the disease as the Bank of England made an emergency cut of half a percentage point in the base interest rate.

The Office for Budget Responsibility slashed its growth forecast for 2020 from 1.4 to 1.1 per cent, even before taking account of the coronavirus, and warned that a recession this year was now “quite possible” because of the outbreak.

But Mr Sunak insisted that his decision to turn on the spending taps – increasing capital investment by around 7 per cent and day-to-day spending by 2.8 per cent – would pay dividends in the longer term, citing an OBR forecast that growth will be half a percentage point higher over the next two years as a result than it would have been and that long-term productivity would increase by 2.5 per cent if later governments follow his approach.

He made a bold bid for Tories to claim Labour’s mantle as “the real workers’ party … the party of public services” as he repeatedly drummed home the slogan that this was “the Budget of a government that gets things done”.

But Labour leader Jeremy Corbyn said the package amounted to “an admission of failure”, confirming that the austerity imposed under Tory-led administrations since 2010 was “a failed experiment” which had slowed the recovery and made the UK’s economic problems worse.

And the OBR described it as “the largest sustained fiscal loosening since the pre-election Budget of 1992”, with chair Robert Chote suggesting Mr Sunak’s plans resembled Gordon Brown’s when he was Labour chancellor.

Former prime minister Theresa May and ex-chancellor Sajid Javid issued barely veiled warnings that Mr Sunak risked destroying the Tories’ reputation for sound economic management by borrowing and spending too much.

The OBR found that the chancellor’s plans would not breach the fiscal rules inherited from Mr Javid, which are intended to act as a constraint on government borrowing.

But after Mr Sunak announced a review of the fiscal rules, to report in the autumn, the former chancellor warned him that they “help us keep our economy strong, help us to keep taxes low and they preserve our flexibility for when we need it most”.

“Sticking to those rules in normal times is what separates us from the parties opposite,” said Mr Javid.

Ms May suggested that the Budget was the result of a free-spending 10 Downing Street overriding the normally more cautious Treasury, just weeks after Mr Johnson imposed a combined advisers’ unit on No 11 despite Mr Javid’s protests.

“While spending a lot of money may be popular and may seem the natural thing to do, there is of course … a necessity to ensure that we have that restraint and caution that enables us to make the public finances continue to be strong into the future,” Mr Johnson’s predecessor as PM told the Commons.

“I’d say merely this – prudent management of the public finances is one of the USPs of the Conservative Party and it’s essential any Conservative government maintains that management.”

Respected economic think tank the Institute for Fiscal Studies also sounded a note of caution, with director Paul Johnson warning that if growth disappoints, Mr Sunak will be faced with “the choice of whether to rein back again on spending, or to announce further tax rises, or to abandon his fiscal targets and to allow debt to rise further”.

The effect of decisions announced in the Budget was to increase borrowing by £29.1bn a year by 2024-25, with total debt passing £2 trillion that year.

Mr Sunak said that the Budget amounted to a plan to “invest more than £600bn pounds in our future prosperity”, taking public sector net investment to its highest level since 1955.

“Take the average amount we’ve invested over the last forty years in real terms – we’re tripling it,” he said, to cheers from the Tory backbenches.

Full details of the planned capital spending will not be known until the publication of the government’s National Infrastructure Strategy, which had been due for publication alongside the Budget but was delayed at the last moment.

Mr Sunak said it would include £27bn on 4,000 miles of strategic roads and motorways, £5bn for gigabit-capable broadband, an additional £2.6bn for flood defences, £800m for two or more carbon capture and storage “clusters” and the “fastest and largest ever” increase in spending on research and development.

In a reflection of Mr Cummings’ oft-voiced fascination with the US Advanced Research Projects Agency, Mr Sunak said he would put £800m into a similar blues-skies funding agency for the UK, as well as £1.4bn for the Weybridge science institute which is currently analysing coronavirus samples and £900m in nuclear fusion, space and electric vehicles.

“As we deal with Covid-19, this is a Budget that provides security today,” Mr Sunak told MPs. “But it is also a plan for prosperity tomorrow.

“It is a Budget that delivers on our promises to the British people. It is a Budget of a government that gets things done.”

But Mr Corbyn dismissed the chancellor’s announcements as “smoke and mirrors” which left austerity “baked into our system”.

He pointed to IFS analysis which suggested that an immediate £54bn boost to day-to-day spending on Whitehall departments outside health and social care would be needed simply to get Budgets back to 2010 levels.

“The government’s boast of the biggest investment since the 1950s is frankly a sleight of hand,” said Mr Corbyn. “It’s in fact only the biggest since they began their slash-and-burn assault on our services, economic infrastructure and living standards in 2010.

“Having ruthlessly forced down the living standards and life chances of millions of our people for a decade, the talk of levelling up is a cruel joke.”

Care providers and think tanks described the lack of additional funding for social care in the chancellor’s Budget as “hugely disappointing”.

Former health secretary Jeremy Hunt described it as a “glaring omission”, adding that there was a “desperate” need for a long-term social care plan.

And the Trades Union Congress said that while the spending U-turn was “badly overdue”, the priority for investment should be to “repair the damage” of 10 years of austerity.

“Helping working families and rebuilding public services must come first,” said Frances O’Grady, TUC secretary general. “And we need to see concrete action on the challenges of the future.

“This means banning zero-hours contracts, sorting social care, ending the UK’s dire regional inequalities, setting out a credible plan to achieve net zero, and getting an EU trade deal that supports jobs and workers across the UK.”

But the Confederation of British Industry praised the chancellor for heeding business calls for “decisive action on vital long-term issues” like infrastructure development and incentives to invest in research and development.

Carolyn Fairbairn, the organisation’s director general, said: “Some gaps still need to be filled in around skills, energy efficiency and powering the UK’s low-carbon future but overall, today’s Budget is a powerful signal to firms at home and abroad that the UK can and will manage the immediate challenges and long-term opportunities in parallel.”

The chancellor added: “We will get through this – together. The British people may be worried, but they are not daunted. We will protect our country and our people. We will rise to this challenge.”