‘Sunak is supposed to be a small state, low tax Conservative who just happens to be in charge of the economy when taxes as a share of national output are on course to be the highest since Labour’s Hugh Gaitskell was doing the job in the early 1950s’ Photograph: Justin Tallis/PA Economics viewpoint We know little about the real Rishi Sunak … but that may change this week It is time for the Tory chancellor to stand up – and there’s no better opportunity than the Mais lecture

There’s something odd about Rishi Sunak. The chancellor has rarely been out of the news since he took over at the Treasury from Sajid Javid two years ago and his approval rating with the public is high. His reputation as a safe pair of hands means he could be the next prime minister – yet we know little about what he believes.

To the extent that while a picture of Sunak has emerged through the blizzard of budgets and mini budgets of a technocrat fascinated by Silicon Valley-style capitalism, in truth there have been only hints of an over-arching philosophy.

Sunak has the chance to do something about that when he gives the Mais lecture on Thursday, an event at which previous chancellors have taken the opportunity to lay out a credo.

Nigel Lawson certainly did in 1984 when he rejected the postwar consensus that macro-economic policy (the big picture stuff such as interest rates, public spending and tax) should be about delivering full employment while control of inflation was the job of micro-economic policy (supply-side measures).

In his Mais lecture 15 years later, Gordon Brown cavilled with Lawson’s notion that deregulation was the key to productivity growth but broadly agreed with his predecessor’s view of the role of the two halves of economic policy. Indeed, Brown had handed control of interest rates to the Bank of England in 1997 for this very reason.

But the new orthodoxy only lasted for as long as the economy stayed out of serious trouble. In both the global financial crisis and, to an even greater extent during the Covid pandemic, demand management came back into fashion. Under Sunak, big picture macro-economic policy has all been about jobs and growth. The nitty-gritty, supply side stuff has taken a back seat because the past two years have been dominated by crisis management and damage limitation.

In the circumstances, Sunak had no choice but to turn the Lawson-Brown orthodoxy on its head. His strategy was costly and unavoidable, and up to a point it has worked. Furloughing workers prevented a repeat of the mass, long-term unemployment that left such deep scars in the 1980s.

The upshot has been a much bigger role for the state in the economy, a development that has been good for Sunak politically. It is because he was prepared to run the biggest peacetime budget deficit in history to save jobs that the chancellor is so popular.

All of which will make the Mais lecture timely and fascinating. Sunak is supposed to be a small state, low tax Conservative who just happens to be in charge of the economy when taxes as a share of national output are on course to be the highest since Labour’s Hugh Gaitskell was doing the job in the early 1950s.

Liz Truss, one of his rivals to succeed Boris Johnson, is making her pitch as a dry Thatcherite and it would be a surprise were Sunak to use Thursday’s event to try to outflank her on the right. Doubtless, there will be the usual talk of how it is important to knock the public finances back into shape yet that would be the message from any chancellor – Labour or Conservative – in the current circumstances.

But Sunak will also note the importance of the state in supporting the economy in the past two years, arguing that as things return to normal the respective strengths of government and the market can be harnessed to stimulate innovation and improve Britain’s poor productivity record.

The emphasis on productivity makes sense because – as the National Institute for Economic and Social Research (NIESR) thinktank points out – the pandemic has made a poor record over the past decade worse. It notes one of the hidden costs of Covid-19: as a result of missed schooling children from disadvantaged backgrounds have fallen even further behind their more-fortunate peers. The long-term effects will be an under-skilled workforce and lower productivity and a cost per pupil in lost lifetime earnings of up to £22,000.

The report has some strong things to say about the deficiencies of economic policy: it is over-centralised and short-termist; industrial policy is too hands-off; investment in early years learning is inadequate and needs to return to the levels under Brown’s government.

As a country, the report notes the UK has one of the poorest productivity performances among the OECD’s 38 advanced economies. Britain also stands out for having big productivity differences between and within regions. The gap between the richer and poorer parts of the country has grown wider. “If policymakers return to the same economic structures post-pandemic that failed to resolve the productivity problem pre-pandemic, then the UK is set for another decade of a low-growth, low-productivity and low-wage economy”, NIESR concludes.

That all rings true, but the Treasury is always wary of devolving power, partly because it likes to be in control and partly because it thinks a bottom-up approach leads to the waste of public money. Covid loan fraud losses mean Sunak is not immune from that criticism himself.

It is the goal of all chancellors and shadow chancellors to make the economy more productive. Before the 2010 election, George Osborne used his Mais lecture to call for an economic model that did away with a reliance on unsustainable and private debt. The wait for this game-changing model goes on, which is why Thursday is the time for the real Rishi Sunak to stand up.

Source: The Guardian

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