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What will worry Boris Johnson and Rishi Sunak is that this was meant to be the easy spending cut. Instead, their plan to shave £4.3bn from overseas aid led to the sorry spectacle of up to 40 Tory MPs trying to force a government supposedly committed to parliamentary sovereignty to allow a vote on its move to breach a manifesto promise to maintain that funding.
Ultimately the rebels, who included Johnson’s predecessor as premier, failed even to extract a pledge that the move would be reversed next year. But in the government’s desire to avoid a vote it expected to lose, the rebels did win in one sense. Ministers can no longer think of cuts to foreign aid as politically painless. What might have become a lasting cut now looks likely to be the temporary measure it was proclaimed to be.
It was, admittedly, an unusual coalition of rebels with the added political cover that they were standing by a manifesto commitment. But it highlights the chancellor’s challenge in enforcing fiscal discipline that, even with a measure supported by most Tory MPs and a majority of voters, there were enough rebels to defeat the government. Every MP has something that will cause them to break ranks and the prime minister is discovering that a majority of 80 ain’t what it used to be, especially when they feel untroubled by the opposition.Â
A more interesting question is whether pressing on with the cut was actually necessary. The Office for Budget Responsibility has substantially pared back its borrowing forecast, and there is growing confidence about the economic rebound. With the tax rises and spending cuts announced in this year’s Budget, Sunak had already set the finances on course to almost balance the current budget by 2025/26 under the more pessimistic scenario. He has more room for manoeuvre than he is letting on.
It is still too soon to be certain. New variants may derail the recovery and the scale of borrowing means a 1 percentage point rise in interest rates adds £25bn to debt interest payments. Nor is there yet a clear picture of the long-term scarring to the economy. But it is clear there was no real need to press ahead with the cut and even less reason to refuse to pledge to reverse it next year.Â
So why did Sunak hang tough, both on aid and, more contentiously, on the catch-up plan to make up for the loss of half a year’s normal schooling, which the Treasury filleted from £15bn over three years to just £1.4bn — an act that led to the resignation of its own education “recovery tsar�
While there is a degree of not counting chickens, this is now more about Treasury control and political management. Sunak fears the scale of pandemic spending has weakened Tory appetite for fiscal discipline. It is getting too easy to be a bountiful Conservative.
Aid is just the first in a series of powerful demands on the Treasury. Aside from the cost of tackling the NHS backlog and the education recovery bill, there is a courts logjam and an overdue pledge to address the social care crisis. Some Tories are queasy about the end of the emergency increase in universal credit welfare payments. And there is still the “levelling up†agenda and extra commitments to meet the net-zero goals.
The impressively mismanaged education spending row was particularly instructive, especially given Johnson’s subsequent pledge that more money would follow. The Treasury had some legitimate points, not least that a supposedly limited one-off plan was being used to secure permanent additional funding for education. It rightly feared it would be unable ever to claw back temporary extra money for teachers.Â
The episode showed Sunak’s determination not to be bounced by every new issue but to corral all the spending demands into the end of year review. It is the chancellor’s job to play bad cop. But he also knows that battle conceded simply accelerates the next one, especially if MPs sense, as they did last year, that Johnson can be pushed around. The key for Sunak is keeping his leader on side and the most telling aspect of recent spending rows is that the prime minister backed his chancellor.
Forcing everything into the spending review offers several benefits. First, it buys him the extra months to ensure the optimism is justified. Second, it allows the Treasury to keep control of events and force decisions over the government’s priorities. Finally there is more political advantage in a single planned show of largesse than in grudging assent to a steady stream of demands.
But it remains true that even if the aid cut looked economically defensible — and this is to leave aside the moral argument — a few months back, it is no longer so. The Treasury is right to insist on process and discipline, but it has hardened those principles to a dogma of inflexibility. The cut may be politically popular, and Sunak might argue it was hard to secure discipline while ringfencing the aid budget. But it comes at a cost to the world’s most needy, the UK’s standing and the rhetoric of a “global Britainâ€. If it is indeed restored next year, it will hardly have been worth it.
The healthier outlook for public finances should allow Sunak to satisfy the most pressing calls, stay on his borrowing trajectory and send his troops happily into an election as the party of prudent spenders. If so, few will blame him for the hard line he is taking now to re-establish financial and political discipline on his party. But it is a high price to pay to teach Tory MPs a lesson they are already supposed to know.
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