Rishi Sunak will next week deliver a Budget in the shadow of a pandemic, in the aftermath of Britain’s painful divorce from its biggest trading partner and with its public finances, on his own account, under “enormous strains”.
But the chancellor, in an interview with the Financial Times, insisted he can see a brighter future and that his second Budget since being appointed last February will help to build a “future economy” characterised by nimble vaccine and fintech entrepreneurs.
Sunak supported Brexit and now has to show it can work. He knows he cannot expect much help from the EU, which has shown no appetite for opening its markets to the City of London, but still insisted Brexit is an opportunity.
He said post-Brexit Britain would be an open country. “It’s a place driven by innovation, entrepreneurship, taking the agility we have after leaving the EU and putting that to good ends, whether in vaccines or fintech,” he said.
Sunak’s Budget on Wednesday will attempt to flesh out the government’s “build back better” slogan; Britain’s successful vaccine scientists and scrappy tech start-up twenty-somethings will be the poster children of this new approach.
While big and profitable companies are expected to face a hefty increase in their corporation tax bills — part of Sunak’s drive to restore fiscal discipline — the chancellor will focus on companies for whom a profit is a distant dream.
On Friday he told the FT he would launch a new fast-track visa scheme to help Britain’s fastest-growing companies recruit highly skilled workers, as part of a drive to build an “agile” post-Brexit economy.
He said he wanted to help “scale up” sectors such as fintech to compete for the best global talent. The new visa system, he added, would be “a calling card for what we are about”.
Next week Sunak will publish a report by Lord Jonathan Hill, Britain’s former EU commissioner, on the City of London’s listings regime, to make it more attractive for fast-growing tech companies.
“We want to make sure this is an attractive place for people to raise capital — we’ve always been good at that,” Sunak said. “We want to remain at the cutting edge of that.”
The chancellor confirmed Hill will look at whether London can be a rival to New York as a location for so-called Spacs, the modish blank-cheque vehicles that hunt for companies to buy and take public.
He declined to speculate on what Hill will recommend, but gave a broad hint he supports radical reform. “Do we want to remain a dynamic and competitive place for people to raise capital? Yes we do,” he said.
The loss of some City business, including EU share trading, to Amsterdam has reinforced criticism of the government over its negotiation of a trade deal that focused heavily on fish, but hardly at all on financial services.
Last summer the Treasury filled in hundreds of pages of questionnaires from Brussels about its regulatory plans for the City but Britain is still waiting for a series of “equivalence” rulings that would allow UK firms to trade with the single market. It could be a long wait.
When Emmanuel Macron, French president, was asked this month by the FT if he was in favour of Brussels granting “equivalence” to UK financial services rules, he replied simply: “Not at all. I am completely against.”
Sunak insisted he has not given up and that the Treasury remained “constructive and open” in talks with Brussels. But he added: “We live in a competitive world. It’s not surprising other people are looking after their interests.”
Sitting in his sparse Treasury office, stripped of any clutter, wearing his trademark bright white shirt, Sunak said: “We just need to focus on what we’re in control of. I’m enormously confident about both the future for the City of London and, more broadly, financial services.”
At the age of 40, Sunak is only just a year into the job. “When I got the job I had three weeks to prepare a Budget,” he recalled. “I genuinely thought at the time it would be the hardest thing professionally I would have to do in my life.” But that was before the full-blown pandemic hit the UK.
“That Budget turned out, probably, to be the easiest thing I did in my first year in the job. It has been a tough year, dealing with something that nobody has had to deal with before. There was no playbook. We had to move at speed and scale.”
His critics argue that handing out £280bn of borrowed money to support the economy may not have been that difficult either — Sunak’s approval ratings remain very high — and that the really difficult bit is yet to come: trying to rebuild the economy and the tattered public finances.
Conservative MPs are anxious that Sunak’s innate fiscal conservatism might lead him to make unwelcome raids on the finances of core Tory voters and businesses, just as the economy starts to reopen.
The chancellor is expected to freeze income tax thresholds, pushing people into higher tax bands as their pay rises. Another “stealth” move — freezing the lifetime pensions allowance at just over £1m for the rest of the parliament — was reported in the Times on Friday and not denied by the Treasury.
And all the while Sunak will carry on running up debts into the summer to protect the economy from what he hopes will be the last Covid-19 lockdown. He said he is “proud” of what the support measures have achieved so far.
“I’m going to keep at it,” he said. “Some 750,000 people have lost their jobs and I want to make sure we provide those people with hope and opportunity. Next week’s Budget will do that.”