Unlike Clarke in 1997, Hunt would not hand a golden inheritance over to any Labour successor

Rishi Sunak has had a good few weeks. Sturgeon’s defenestration; the Windsor Framework; glad-handing with Volodymyr Zelensky, Joe Biden, and Emmanuel Macron; a Budget that hasn’t exploded on first contact with the markets: all in all, a temporary impression of calm competence has been created (a blessed contrast to recent history).

But for all those good headlines, the situation remains the same. The polls stubbornly suggest we are on track for a landslide defeat. The new leadership has not provided for a BazBall-like resurrection of Tory fortunes. Sunak may be dreaming that the next election will provide a reprieve like 1992. The reality appears to be closer to 1997 – even if Keir Starmer is no Tony Blair.

However, if the Tories lose power, there will be a crucial difference in the inheritance Sunak and Jeremy Hunt pass over to Starmer and Rachel Reeves than that bequeathed in 1997. Kenneth Clarke passed a rosy economy over to Gordon Brown – and a set of spending plans to which the Iron Chancellor pledged his devotion.

Derek Scott, Blair’s economic adviser, described Labour’s economic inheritance in 1997 as better than that of any Chancellor in living memory. Inflation was at 2.6 per cent. Unemployment was at 1.6 million and falling. The economy had grown for almost 20 consecutive quarters. Post-Black Wednesday, interest rates had fallen back to 6.25 per cent. The past is a foreign country, clearly.

Having seen the John Smith’s Shadow Budget trashed, Brown understood the need to establish Labour’s fiscal credibility. So, he pledged to stick to the Tories’ spending plans – and did so (even if Clarke himself had not planned to). Hence why, by 2000, public spending was only 37.5 per cent of national income. Credibility restored and a second term won, Brown could turn on the taps.

Sunak and Hunt don’t intend to hand Labour a similar gift. Not that they purposefully intend to damage our economic position– although that would provide a post-hoc rationalisation for Trussonomics. Instead, as Ian Mulherin has highlighted, yesterday’s giveaways rely on punting tough decisions past the next election – and into the lap (potentially) of Starmer and Reeves.

Hunt’s central fiscal rule – to have debt falling as a percentage of GDP within five years – was met with only £6.5 billion of wiggle room. This relies upon public spending rising at only 1 per cent a year past 2024, and on a future Chancellor breaking with the recent refusal to hike fuel duty in line with inflation. This policy alone would more than halve his headroom.

In the gospel according to James Forsyth – as, henceforth, the previous works of the Prime Minister’s Political Secretary shall be known – this provides a political challenge for Labour. They could mirror Brown in 1997 and accept the Tories’ spending plans. But that would hardly prove popular with backbenchers keen to splurge on public services after a decade or so of Tory austerity.

The alternative for Labour would be to disagree with Hunt’s approach and lay out their own tax and spending plans. This leaves the party open for attacks as to what they plan to cut and who they plan to tax more. Somewhere in Matthew Parker Street those aides not wholly preoccupied with stitching up selections are wheeling out the ‘Labour’s Tax Bombshell’ ads, as Isaac Levido grins.

The strategy makes sense and plays well with Sunak and Hunt’s reassuringly dull brand. The problem the pair face, paradoxically, is what they have to do if it proves too effective. By which I mean: what are they going to do if they actually win the election? It will cost £8 billion to make ‘full expensing’ permanent (as the pair would want). So: down which sofa does Hunt plan to find that cash?

The hope in Downing Street is that a better-than-expected performance by the economy this year will satisfy the Office for Budget Responsibility sufficiently so that a few tax cuts can be made this autumn or next spring. But doing that whilst upping spending will require finding more growth or plucking revenue from somewhere.

Of course, Tory MPs could stand on a platform of cutting spending. Yet the central reason why the tax burden is currently at a 70-year high is precisely that they have been so unwilling to previously do so. You want 3 per cent of GDP on defence, to keep the Triple Lock, and to increase benefits in line with inflation? Great! So what about finally hiking fuel duty? Ah – no dice.

Whoever wins the next election thus faces a rather sticky wicket. We’re closer to 1964 than 1997. Then, Reginald Maulding, the outgoing Chancellor, left a note for Jim Callaghan, his successor: “Good luck, old cock…. Sorry to leave it in such a mess.” Callaghan was facing a currency devaluation. Hunt’s inheritance shouldn’t be so poor. But it’ll still be a cruel, rather than cool, Britannia.

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