Why Oct 27's twin fiscal events are UK autumn highlight

ONE OF the conventional wisdoms in UK politics is that Prime Minister Boris Johnson's government is a strong bet to handsomely win a second term of office. Yet, change may be "in the air" with difficult months ahead with the pandemic and rising infections.

To try to move from defence to offence before Christmas, UK ministers have a series of forthcoming key announcements, including twin fiscal events on Oct 27 with both the Budget and Comprehensive Spending Review (CSR). This is the first CSR since 2015 and will set out in detail spending priorities, changes to the tax system, as well as confirm the overall public sector spending envelope.

UK finance minister Rishi Sunak said in the March 2021 Budget that "in normal times the state should not be borrowing to pay for everyday public spending". Balancing the books is an unfashionable government pursuit of late, but in spite of unprecedented continuing demand on public finances from the pandemic and Brexit, it remains Treasury policy to close the deficit. This challenge accompanies a broader one of intervening to stimulate and secure economic recovery in the years ahead.

The government has set out the high-level, political objectives for the CSR: ensuring strong and innovative public services; "levelling up" across the nation to increase and spread opportunity; leading the transition to net-zero across the country; advancing Global Britain and seizing any opportunities that come from Brexit; delivering a plan for growth by rolling out plans for an infrastructure and innovation revolution and cementing the United Kingdom as a scientific superpower; and social programmes including education catch-up premiums for pupils in England, National Health Service waiting list reduction plus hospital expansion and new buildings, and a new social care system.

Outside of this, "known unknowns" include the possibility of extra funding for local authorities. This comes in a context whereby there is an estimated £3 billion (S$5.6 billion) shortfall nationally by 2023/24 with at least 10 councils having asked to borrow £300 million of emergency cash already, and many others making large spending decreases.

There are also longer-term strategic decisions that must be fleshed out and funded. Take the example of Global Britain which has taken a knock with the botched withdrawal from Afghanistan, and while the recent UK-US-Australia defence pact renewed friendships in Washington and Canberra, it has soured ties in Paris, Brussels and Beijing.

VERY EXPENSIVE PRICE TAGS

All these priorities have grown from pledges in the 2019 Conservative manifesto. Even before the pandemic, Johnson favoured an investment-led strategy for growth, over the fiscal restraint and austerity of previous Conservative governments. There were no tax rises in the manifesto though, and the pandemic has "steamrolled" the usual barriers controlling access to the public purse strings.

Once broken, the Treasury may struggle to put the "genie back in the bottle". Johnson is a big-ticket spender with a penchant for infrastructure and suffers no ideological dogmatism of the sort that defined the Thatcher government's shrinking of the state. Those on the Conservative back bench who still subscribe to this philosophy are increasingly politically homeless, with challenges like meeting net-zero carbon emission now fixed party positions attached to very expensive price tags.

A key question therefore remains over how the package will be paid for. This is not least as Oct 27's announcements will be set against a backdrop of rising inflation, fuel shortages, and supply chain issues, which - compounded by government jobs support winding down - mean individual households are set for a winter of strained finances, and many businesses having to push up their operating costs.

That said, gross domestic product appears to have made a better recovery in recent months than originally forecast by the Office for Budget Responsibility (OBR) at the start of the year. If confirmed on Oct 27, then there is potential for some fiscal breathing space. However, there is still considerable uncertainty in the UK's projected economic performance into the next financial year, and any favourable consequences for the Treasury (that is, growth in tax receipts) will likely be deployed to reduce borrowing or kept back as reserves for any major forthcoming pandemic measures needed.

Sunak will also need to leave some headroom to account for a rise in interest rates that makes debt more expensive to service. Indeed, the most recent figures available from the OBR show that government borrowing was higher than expected for exactly this reason.

There is a general consensus that the current tax framework will remain largely in situ until later in this current Parliament, not least because 2021 has seen a record number of tax rises already. There is, however, a sense of keeping the tax system adaptable, and the Treasury might have in its sights the "winners" of the pandemic like supermarkets, online shopping markets, and other technology platforms whose tax contributions may come under increased scrutiny. Similarly, business rates reform and value added tax (VAT) may prove invaluable tools for supporting some of the key losers from the pandemic - particularly the tourism and hospitality sectors - and areas of the country where tax breaks can assist in the levelling up agenda.

Overall, Johnson and Sunak are therefore placing strong hopes that Oct 27's announcements will provide political momentum into 2022. And potentially help give a governing purpose to the Johnson administration in the absence of any coherent, defining signature issues other than leading the UK during the storm of the still-brewing pandemic.

Indeed, with last week seeing coronavirus infections growing beyond 50,000 a day for the first time in months, what could now be very damaging for Johnson this autumn or winter would be further lockdowns which could raise the political pressure on him further, given the previous commitment to the "irreversibility" of the easing of restrictions in spring and summer. The PM knows that another series of regional or England-wide lockdowns, which he has previously insisted will not be needed, would be another body blow for his political credibility and authority.

So much so that, while Johnson appears politically impregnable sometimes, there would be increased doubt in Westminster if he can survive in office until the next election, given that his approach to tackling the crisis is already seen by many as chaotic. The roller coaster ride that his premiership is proving may yet have more twists to come, and end far sooner than many currently expect, and in potentially ignominious circumstances.

• The writer is an associate at LSE IDEAS at the London School of Economics.