By Professor John Bryson
Department of Strategy and International Business, University of Birmingham
The Chancellor must balance a long-term approach with short-term needs. This is all about acting with responsibility and developing solutions for immediate problems but framed within investments intended to support a better future.
We are all living in extremely challenging times. The Chancellor of the Exchequer, Rishi Sunak, positioned the Spring Statement in the context of Ukraine. Yesterday evening I had a Zoom discussion with a family still living in Ukraine who had fled their home with their son, dog and just two cases. This conversation placed living in the UK in context. In the UK, the cost of living is rising rapidly, and inflation has returned with a vengeance, but we have not yet had to flee our homes in the knowledge that there might be no return.
In comparison to the conflict in Ukraine, inflation in the UK seems rather trivial. Of course, some inflationary pressures are directly linked to sanctions imposed on Russia and I welcome these sanctions and appreciate that they will directly impact on the cost of living. However, more sanctions are required and must be imposed irrespective of the impacts on our cost of living in the UK and across Europe.
The Chancellor benefits from inflation as this increases the tax take, and thus the Government can afford to take steps to reduce the everyday impacts of inflationary pressures on the most vulnerable households. These measures include raising the National Insurance thresholds by £3,000 – this represents a tax cut of over £330 a year for around 30 million people and these are some of the poorest households. In addition, fuel duty will be cut by 5p a litre. However, with fuel duty, one needs to be extra cautious. The Irish Government cut fuel duty by 20 cents a litre for petrol and 15 cents a litre for diesel in March 2022, but these cuts were rapidly eroded by further price rises. For petrol and diesel, the key message that comes from Ukraine is to accelerate the shift away from dependence on gas and oil. This has important implications. On the one hand, the UK government must focus on electricity security and increasing supply and security of supply, and this also includes a focus on electricity costs. On the other hand, everyone living in the UK must begin to reduce their travel. This is part of a shift towards more liveable neighbourhoods that would be cleaner and healthier places to live with enhanced air quality and reductions in noise pollution.
As always, the Chancellor is between a rock and a hard place. It is very easy for opposition parties, charities, and social enterprises to demand more government interventions to reduce the impacts of inflationary pressures. The Chancellor must balance a long-term approach with short-term needs. This is all about acting with responsibility and developing solutions for immediate problems but framed within investments intended to support a better future. For this Chancellor, this is partly about tax cuts that provide some relief today and promises of future cuts. A key issue is to encourage investments in energy efficiency. The key lesson regarding energy consumption is to reduce waste and reduce consumption and this means altering behaviour and investments in energy efficiency and for the Spring Statement, the key here is the removal of VAT from energy efficiency improvements.
It is important to place the Spring Statement in a wider context. The UK needs to spend more on long-term social care as well as the NHS. It needs to spend more on education, and it needs to enhance expenditure on cybersecurity and on defence. The economy is growing, and this increases the tax take, but there are so many competing calls on the nation’s purse. What should be prioritised?
With Ukraine, it is important to remember that the first duty of a government is the protection of its citizens. This includes supporting everyday living and trying to reduce the impacts of what might be short-term macro-economic events. Nevertheless, the challenges that this country is facing revolve around economic security including energy, food and medical security and these challenges must be framed within the context of climate change and enhanced insecurity. Developing solutions to climate change requires major investments combined with behavioural change. Enhancing national security revolves around increasing defence expenditure and developing and maintaining relationships what other countries.
The key issue is to ensure the long-term safety of the UK people, and this Spring Statement skirts around many of the core challenges facing this country. Thus, we need to accelerate behavioural change and related investments linked to reducing climate change impacts and this needs to be combined with a renewed focus on national security defined in military and economic terms. Globalisation has changed and a new form has emerged which requires a new balance between that which is produced locally and that which is procured from global supply chains. All countries need to become slightly more self-sufficient. Now is the time to act to ensure the future economic and national security of all living in the UK.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.