Look out the window, Rishi

Most egregiously, the Chancellor did precisely nothing about benefits. Whatever you think about state welfare, it clearly makes no sense to increase benefits by 3.1pc based on an inflation figure back in September when we now know prices are likely to rise by at least 8pc this year.

On top of this, Sunak’s tax strategy was a hot mess. Why raise National Insurance contributions on one hand, cut income tax on the other (but not for a couple of years) while offsetting it with threshold increases in the meantime?

Appearing before the Commons Treasury committee on Monday, Sunak spelled out that any fiscal headroom ahead of the next election will go on tax cuts and not public services. “From this point forward, my priority is to keep cutting taxes, not to increase public spending,” he said.

Which is all well and good but for two things: he already has headroom and he hasn’t even started cutting taxes. The OBR’s summary of the Spring Statement spells out the contradictions. Sunak will have £30bn of headroom at the end of the forecast period against his fiscal targets and is only giving back one sixth of the tax increases that he’s already announced.

But worst of all, Sunak’s understandable desire to balance the books has blinded him to a narrow window of opportunity.

The government finances have ironically been helped by price rises boosting tax revenues. National debt as a share of GDP is lower in every year of the forecast period than was being predicted in October. The headline debt measure is due to hit 83pc of GDP – exactly where it was before Covid hit – by 2026/27.

Yes, the cost of some inflation index-linked bonds will climb sharply next year. The Treasury has highlighted that this will result in debt interest payments hitting £83bn in the coming financial year.

That’s sort of true from an accounting point of view. But, as the economist Julian Jessop points out, no cash will change hands; the Government won’t have to pay any money to bondholders until the debt matures – potentially years from now.

Sunak talks in terms of needing a margin for safety. But there’s such a thing as a false economy. Sometimes it’s prudent to borrow some money to fix your leaky roof before the thunderstorm hits.

“Being a bit more flexible now would probably help improve the outlook for the economy and make it more likely that the OBR forecasts for growth and unemployment are delivered,” says Jessop.

Sunak is cautiously keeping £30bn in his back pocket for a rainy day. He should take a look out the window. The storm clouds are gathering.

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