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.
The Office for Budget Responsibility (OBR), the government’s spending watchdog, also made a number of sobering points. As a result of his rather modest tax cuts, Hunt has a rainy day fund of just £9bn – low by historic standards. The sums only add up, according to the OBR, on the assumption that fuel duty is raised – something that has not happened since 2011 – and that there is no growth in public spending per head of population over the next five years.
The fact is that Hunt only had three options for the budget. The first was to play it absolutely straight and rule out any giveaways on the grounds that the public finances were not in decent enough shape to warrant it. That is what he would have done were it not for the fact that an election is looming and the Conservatives are a country mile behind in the polls.
Option two was to ignore the OBR’s strictures and just go for it with a bumper package of tax cuts and spending increases paid for by an increase in borrowing. Liz Truss tried that and prompted a mini-financial crisis, which is the reason Hunt became chancellor in the first place.
So that left option three. Stick to the letter of his fiscal rules – that debt as a share of national income should be falling in five years’ time – but still find a way to fund a package of tax cuts. That is what the chancellor did, through a combination of stealth taxes, post-election plans for public spending (which look implausible) and by leaving only the titchiest amount of spare cash in reserve.
Will it work? Hunt says the economy is improving, and he is right about that. Inflation and interest rates are coming down, growth and living standards are picking up. The recovery is still in its early stages though, and for the government time is fast running out. Given his self-imposed fiscal constraints, Hunt’s second budget was all he felt able to come up with. But the Conservatives needed more. They needed a gamechanger. This was not it.
