Austerity may be over – but the chancellor’s problems are not

There remain long-term pressures on this country’s finances, not least an ageing population

There is one huge mistake that the Chancellor, Sajid Javid, may make when he presents his first budget on 11 March. It will be to forget that there is one thing totally beyond the government’s control: the global economic cycle.

No one knows when the next downturn will come or how serious it might be, but odds-on there will be one in the next five years; in fact it may already have begun. The danger is that the chancellor has so boxed himself in with spending and tax promises that the budget deficit, far from coming down or even remaining stable, starts shooting up again. That has destroyed the reputation of many postwar chancellors, most recently Gordon Brown; Mr Javid should not want to join that club.

But he may well do, as he has indeed boxed himself in. The three biggest sources of tax revenue are income tax, national insurance contributions (NICs), and VAT. But this government, like previous Tory governments, has pledged not to increase rates on these; there is even an aspiration to increase the floor at which NICs are levied. If you cannot increase these taxes, which bring in nearly two-thirds of your revenue, you have to scramble around with smaller taxes. As the Institute for Fiscal Studies observed: “The tax lock is bad policy and should not be in the party manifestos.”