Early evening summary
Jeremy Hunt has announced a 2p national insurance cut in his budget as a pre-election gambit to revive flatlining opinion poll ratings and reboot Britain’s economy from recession. The 2p cut had been widely reported in advance, and Hunt’s speech lacked a surprise announcement that might have energised Tory MPs, beyond a vague (and fairly implausible) suggestion that the Tories might abolish employees’ national insurance in the long term. (See 2.52pm.)
Here is Larry Elliott’s analysis.
And here is an extract from Larry’s piece.
Jeremy Hunt is in favour of delaying the election until the autumn, and it showed. His second budget had all the hallmarks of a holding operation from a government hoping the summer will bring better economic news and leave open the possibility of another package of measures in six or seven months’ time.
Sure, there was the much-heralded cut in national insurance contributions, which formed the biggest chunk of a front-loaded £14bn stimulus package. Certainly, he took every opportunity to have a pop at Labour in a deeply political speech. This will be the last budget before the election, but it did not feel like the last roll of the dice for the government.
Hunt did what all chancellors do on budget day. He accentuated the positive. There was much talk about how the economy had turned a corner, but nothing about how this is on course to be the first parliament in modern times where living standards have fallen. He was keen to say that taxes had been cut by £900 for the average worker as a result of last year’s autumn statement and this year’s budget. He forgot to mention that the long-running policy of freezing thresholds means the Treasury is still sucking spending power out of the economy in this and every year until the end of the decade. The budget tax cuts mean the fiscal tightening for 2024-25 is just over £41bn rather than the £56bn previously planned.
Keir Starmer, the Labour leader, used his response to the budget to say that policies implemented by the Conservatives over the past 14 years had left Britain in a “vicious downward spiral”. He said:
The reality is, there is no path to economic stability, no way to a calmer, less chaotic politics, with the party opposite in power.
Because chaos is now their worldview. A mindset that sees Britain’s problems as opportunities they can exploit. Whether, like the chancellor, that’s out of desperation because they can’t solve them. Or whether, like the [Suella Braverman or Liz Truss], they have no intention of solving them whatsoever.
For a party this weak and divided – the end result is always the same. A vicious downward spiral. Chaos feeding off decline. Decline feeding off chaos.
While working people pay the price.
The British people know – this will not stop.
Starmer said little about the specific budget meaures in his speech, although Labour later indicated that it will try to find alternative ways of funding the policy commitments it planned to fund using tax measures now adopted by the Tories. (See 5.57pm.) Starmer ended his speech by challenging Sunak to call a general election for 2 May. But he is unlikely to get his wish. Despite recent chatter about an early election, the consensus at Westminster is that this budget has made that less likely. For a May election, the budget would have needed to function as a springboard. Instead, this one was short on bounce.
On the economic front…
Despite Hunt’s various tax cut announcements today, the tax burden will reach a 70-year high of 37.1 per cent of GDP in 2028-29, the Office for Budget Responsibility says. That’s the highest since 1948.
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The economic outlook has improved slightly since November, even though the UK sank into recession at the end of last year.
The OBR revised up its forecast for growth this year to 0.8%, up from 0.7% expected before. The OBR then expects growth of 1.9% in 2025, revised up from 1.4%.
But according to the Resolution Foundation, the UK’s slow growth means the economy is set to be smaller in real per capita terms at the time of the next election than it was at the previous election in 2019, for the first time ever.
The chancellor also has extremely little flexibility to hit his target to have debt falling, as a share of GDP, in five years’s time. His fiscal headroom has shrunk to £8.9bn, which is little more than a rounding error - and arguably just fantasy, as it based on unrealistically tight public spending after the election.
Goodnight! AS and GW
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