One of the main economic dividing lines on the Right is between those who put cutting taxes first and those who put spending control first.
The long post-crash era of quantitative easing has loaded the argument in favour of the first group. Because if interest rates don’t rise, government can borrow more without the working economy feeling the pinch.
And the Bank of England duly records that, since July 2007, the bank rate has risen only twice – in August 2017, by half a per cent, and November 2017, by a quarter of a per cent.
The flavour of recent history is demonstrated not only by these miniscule rises, but by the rate remaining at 0.5 per cent for over seven years, between March 2009 and August 2016.
Today’s rise from 0.1 per cent to 0.2 per cent may be tiny in terms of percentage, but it is potentially very big indeed in terms of implications.
Perhaps the present inflation is only a blip, and the global economy will revert to that recent post-QE norm as recovery sets in and bottlenecks ease.
And perhaps it isn’t – because that norm is gone, inflationary expectations are setting in, and the Bank will in any event follow the lead of the Fed.
Let’s leave aside for a moment the view that rising rates are not an obvious solution to inflation in used cars, petrol, electricity and gas.
Leave aside, too, the dispute over whether the Bank should have acted earlier, a view enthusiastically championed by our columnist Gerard Lyons.
The point to ponder is the psychology of voters who have never known rising and higher rates. One has to travel back in memory to September 1991, a year before “Black Wednesday”, to find the bank rate at over ten per cent.
A child born in that month would be just over 30 today. An entire generation has grown up to view low rates almost as a feature of nature: the sun rises each day and rates stay at below one per cent.
Higher rates may be good for savers but they’re bad for borrowers – and so by extension for business. The squeeze on the cost of living for families, workers and firms is about to get tighter.
Rising rates and their aftermath was always likely to be tougher for Boris Johnson than the lower rates of the Covid period (though they were already so low that the small cut last year made little difference to anything much).
That Omicron is reviving that Coronavirus period, at least for a bit, only makes Ministers’ calculations more complex – in all respects but perhaps one.
Which is that rising rates add force to Rishi Sunak’s argument that higher borrowing no longer comes consequence-free.
For what it’s worth, I believe that tax cuts and spending control must walk in step, though there was a period recently where the balance of the argument favoured taking a risk with rates.
That time has now gone and, since some tax cuts are required to help boost growth, the Government will need to revisit public spending levels if it is to make them.
The Prime Minister will hate a revived debate about spending, Ministers aren’t used to it, we haven’t really had it since Brexit – and it is alien to the Boosterist spirit of the Johnson project. But it is coming.