HM Treasury

One of the characteristics of political and diplomatic skill is to let people believe you have heard them and will be addressing their concerns, regardless of whether those concerns make any logical sense. The trick is to first agree with them, and then slightly pivot to where you want to be.

So at the moment there is much genuflection towards the economic orthodoxy and the common belief. We see statements such as

The Treasury now rightly says we cannot go on with the excessive borrowing and very high levels of state spending needed during lock down.


We have a black hole close to £400 billion at the moment. That’s not sustainable and no one should feel comfortable about that being sustainable

Of course better informed people know both these statements are incorrect. Borrowing is caused by people saving, and people saving and not spending is always sustainable because, well, they’re not spending. There’s not even any need to pay them interest to do so. They will save anyway for insurance, status and liquidity purposes.

But the true believers have to be appeased. So what is a politician to do? How can they square the circle?

Well the approach is to announce tax rises across the board to ‘bring down the deficit’ and ‘plug the gap in the finances’ - the usual rhetoric. However, to give people time to adjust, those taxes are to be delayed for several months.

The intent is to lay down a threat that taxes will rise, which satisfies those who want to ‘pay off the debt’ (aka confiscate people’s savings), but also adjust expectations so that spending is brought forward to avoid the effects of the tax rises.

In the late 1980s delaying the cancellation of double MIRAS (removing a tax relief is a tax rise) by six months helped trigger the Lawson Boom. It seems that the UK chancellor is hoping that the same effect can be used to drag the UK out of a post-Covid slump.

And if it doesn’t happen, then the proposed tax rises can be cancelled or delayed “due to prevailing economic conditions”. Even if it does the tax rises can be canceled “due to the unexpected recovery in the financial position”

As a political play it is a win-win.