How to Analyse the Budget

In just a few days, the government will set out its Spring Budget. Like all other media, you will be keen to publish a response quickly. This letter sets out five simple rules you can follow to make your analysis punchy, insightful and – unless your competitors follow suit – distinctive:

Rule #1: Remember that the UK is no longer on the gold standard.

Rule #2: Remember that people are citizens, not just tax-payers.

Rule #3: Do not ignore wealth and power.

Rule #4: Provide global and historical context.

Rule #5: Show that alternatives are possible.

Rule #1: Remember that the UK is no longer on the gold standard

The UK has not been on any form of the gold standard since 1971 – for over half a century we have been operating a fiat currency system in which the UK government can create money in unlimited quantities whenever it needs to do so. And it has created, via the Bank of England, £895 billion since 2009.

Of today’s government debt, as a result, over one third is already ‘debt’ that the government owes to itself – and therefore this is not debt in any real sense of the word. The Government could, if it wished, make that one third into two thirds or even more. This means that letting concern over future levels of ‘debt’ drive economic decisions today is utterly misguided, and you should call it out in your analysis.

Not being on the gold standard also means that UK government finances are nothing like household finances. Taxes are needed to enable spending without letting inflation take hold; they are not needed to finance the government.

This means that hysteria over missing the Chancellor’s arbitrary and self-imposed fiscal rules is misplaced. The law of sectoral balances – one of the few economic laws that can be guaranteed to hold – implies that, in general, the government sector should run moderate deficits to prevent private sector deficits. Moderate government deficits are not some aberration of an ill-disciplined administration, they are the way a responsible government should run – and that is why almost always and in almost all countries, they exist.

Alarmist headlines about ‘staggering levels of debt’ are utterly misleading to your readers / viewers.

Rule #2: Remember that people are citizens, not just tax-payers

It is common to make the Budget more accessible and bring it to life by presenting what it means for working-class Dan and Janice in Bradford or middle-class Susan in Islington. This is good practice as long as you remember that Dan, Janice and Susan are citizens, with parents and children, not just taxpayers.

If Dan and Janice receive a £750 per annum tax cut because the government constrains public spending, it does not make them better-off if the NHS is so underfunded that Janice has to pay up to £15,000 to have her hip replaced privately.

Susan is not better-off if, because of the social care crisis, she has to fund her father’s nursing home fees. And if her daughter has autism, but is not suicidal, and CAMHS cannot give her an appointment for 2 years so her education is severely disrupted, Susan is not better-off.

Rule #3: Do not ignore wealth and power

It is not enough to illustrate the impact of the Budget on Dan, Janice and Susan, you should also mention Jonathan in Holland Park (though domiciled for tax purposes abroad).

Including Jonathan in your analysis will show how easy it is for a billionaire to pay under 5% of tax on his or her true economic income while working people can be paying up to 40% or more. Indeed it seems likely that Rishi Sunak pays under 1% on his true economic income in a normal year, rather than the 22% that was generally reported.

This is something you should ensure that your public are aware of.

Rule #4: Provide global and historical context

Providing data without context is largely meaningless. You should compare how the average UK citizen is faring with how citizens of other countries like Germany, the Netherlands or Denmark (which we used to regard as our peers) are doing.

This chart from the FT, for example, which indicates how many British households are now worse-off than their counterparts in Slovenia, is an example of useful context for your readers.

Similarly, the public knows there is a cost-of-living crisis, but many are not aware how much worse the UK is now performing for its citizens than it did historically. Charts with a long time series like the one below provide insightful context.

Rule #5: Show that alternatives are possible

It is particularly important when it is clear that the Budget will cause a further fall in living standards for many people, weaken public services and infrastructure, and perpetuate low economic growth that you illustrate – at least in outline – the shape of an alternative Budget which does address the needs of the UK.

If no alternative is visible, the government will present its Budget as a regrettable necessity, and the Chancellor as having had the responsibility of taking ‘difficult decisions’ rather than as ducking responsibility for rebuilding the UK.

If you follow these five simple rules, your analysis will be genuinely helpful to your audience – and probably very distinctive.

I hope this is helpful.

Yours ever,