Rishi Sunak has acknowledged the challenges ahead – now we have to face them

The chancellor, Rishi Sunak, obviously has a flair for publicity and the right phrase – and he is fond of reminding us that during his first Budget last year he said that he “would do whatever it takes” to support the economy during the Covid-19 pandemic. He did so again during this latest Budget. Mostly, he has lived up to it, though there remain important gaps in the web of measures that have sprouted since last spring and the first lockdown.

The result has been that Mr Sunak has plonked himself firmly in the record books – with the national debt now sitting at more than £2 trillion, the highest in about six decades, and £407bn set to be spent dealing with the effects of the Covid crisis. Had he not done so, however, the 10 per cent drop in national income, the steepest in 300 years, would have been even sharper, and the severe recession would have turned into a protracted slump.

So when the chancellor says he has done whatever it takes, he has also had little real choice in the matter, economically or politically. He should continue to do whatever it takes, and he should also have made a virtue of necessity by pledging to continue the central support schemes, particularly those protecting jobs, for as long as the public health crisis continues, rather than by setting down decisive dates.

With luck, No 10’s roadmap should dovetail with No 11’s plans, but it is contingent on progress in suppressing the pandemic. The chancellor is right to want to bring some certainty to businesses and households, but not at the cost of having to make hurried U-turns if things go wrong. We know by now how easily that can happen.

What was missing within the Budget was much recognition of the financial gaps that have weakened the government’s response to Covid-19 (and thus weakened the economy too). Help for the newly self-employed is still inadequate. Statutory sick pay and the £500 flat-rate payment remains far too low to enable some to self-isolate. The extension of the £20 uplift to universal credit probably could not be avoided, given the outrage that a cut would have sparked. Much more could be usefully expended on supporting school students to catch up with their lost time, and the same goes for the much-neglected courts and tribunals service.

“Fiscal drag” is no one’s idea of a popular slogan, but it is how the government is starting to get the deficit down. Freezing thresholds for higher rates of income tax and a wide range of other revenue sources, such as inheritance tax and capital gains tax, represents something of a stealth strategy. As wages go up and assets increase in value, the taxes on them increase in real terms and drag more taxpayers into higher tax brackets.

So more relatively modestly paid workers could gradually find themselves in tax bands that used to be associated with the better off. The effect, in the medium to long term, is a significant hike in personal taxation and erosion in real incomes and living standards, and the chancellor has indeed confirmed that the freeze will last until 2026 – after the next election.

Avoiding a rise in headline rates (a manifesto pledge) later in the parliament might be a good political ploy, but starting the fiscal consolidation now is premature. If taxes of any kind had to rise they should have been targeted on those who have done nicely out of this crisis – in particular the online retailers who are already undertaxed and pay little in business rates or corporation tax. It was a curious missed opportunity to do the right thing fiscally and politically.

In the long term, though, wages and living standards are governed much more by productivity and investment than taxation (some of which, after all, goes to support the NHS, policing and other valuable collective goods). So it was refreshing to hear the chancellor take Britain’s problem with low productivity seriously. With some bold moves on tax allowances as well as an inevitable post-dated rise in corporation tax, he has deftly incentivised business to bring forward investment plans – the prerequisite for sustainable economic growth.

The UK Infrastructure Bank, symbolically headquartered in Leeds, is also welcome, especially if, as the chancellor promises, its £12bn capitalisation will bring forward some £40bn in private investment. New bonds to invest in green growth are similarly welcome. Without making much fuss about it, Mr Sunak is gently tilting the British economy a little away from consumption and towards investment, public and private. It may even be that the much-hyped freeports will yield a net increase in investment, though the lesson of experience is that they usually merely displace investment from areas nearby that are equally hard up.

Mr Sunak said nothing about the burdens Brexit is loading on to British businesses. In Teesside, for example, it might well be that there are businesses ready to create new green high-tech jobs, pioneering new goods and services. But they will not thrive if they remain outside their biggest markets in Europe, with few new global markets being opened up to compensate.

This Budget is some way from ideal, but Mr Sunak has been sensible enough to acknowledge the scale of the challenges ahead.