At a drinks party in Downing Street a few weeks after he took over as chancellor last year, Jeremy Hunt told his guests: “Sometimes doing the popular thing isn’t the right thing.”
Ever since he was handed the keys to the Treasury, first by Liz Truss and then Rishi Sunak, Hunt’s overwhelming priority has been to restore the Conservatives’ reputation for economic competence.
As a result, he has rejected calls from Tory backbenchers for tax cuts, from the unions for decent public sector pay rises, and from the armed forces for a £10bn increase in defence spending.
Some Tory MPs – particularly those who won seats in 2019 – are unhappy, voicing fears of a return to George Osborne-style spending restraint when their constituents need better-funded public services and an indication that levelling up is more than just a slogan.
However, government insiders insist Hunt will not alter his conclusion: that voters will have more money in their pockets if inflation comes down, and there will not be any big spending commitments unless growth is boosted to pay for them.
Both the chancellor and Sunak understand that, for the Tories, there is only a very narrow path to winning the next election. It all revolves around the economy. If they can persuade the public they would be better guardians than Labour, they still have a chance.
It could be an uphill struggle. JL Partners became the latest pollster this week to find that Labour had taken the lead from the Tories on the economy, with a five-point advantage, while other pollsters have been suggesting that for months. It is a dramatically different picture to the double-digit lead the Tories held on the issue in 2020-21.
Hunt tried his best to put a positive spin on the economic picture in Wednesday’s budget, as his wife, Lucia, and their two oldest children watched from the House of Commons gallery. “It’s this government who fix the roof while the sun is shining,” he said. “The declinists are wrong, and the optimists are right.”
The Office for Budget Responsibility (OBR) now forecasts the UK will avoid a technical recession, and growth will be stronger next year in the run-up to the next election than was predicted after Truss’s disastrous mini-budget.
Hunt’s emphasis on growth – through funding new tax breaks for business investment and a drive to get people back into the workforce – was only slightly dampened by the Guardian’s eve-of-budget revelation that his “rabbit in the hat” would be a £4bn expansion of free childcare to one and two-year-olds.
Yet despite his buoyancy, the reams of official papers published alongside the budget told a different story: the OBR forecasts may have been more positive, but still projected this year will see the biggest-ever fall in living standards.
The chancellor’s repeated comparisons between the latest economic forecasts with the (much worse) ones issued last autumn, as though Truss had nothing to do with the Conservatives, jarred.
Many Tory MPs were publicly upbeat about the budget, cheering along at all the right moments in the Commons chamber and later at a private meeting of the backbench 1922 Committee. Afterwards, one MP even shouted down the corridor: “He’s won us the next election, with a small majority, but he’s done it.”
However, while those with seats in the traditional Tory heartlands of the south-east were breathing a collective sigh of relief, there was no escaping some of the surprised – even alarmed – faces among the “red wall” intake when Hunt announced he was abolishing the lifetime allowance on pensions savings entirely, a massive tax break for the richest 1%.
It comes just as the overall tax take is forecast to hit record levels with corporation tax increasing from 19% to 25%, and income tax thresholds frozen in April which will mean £500 more tax for basic-rate taxpayers and £1,000 more for higher-rate taxpayers.
“I don’t understand why we haven’t set up a bespoke scheme for retiring doctors if that’s what they’re worried about – rather than a huge tax bonus for the very rich,” one Tory backbencher said.
“I worry that if we lose the narrative, it will look like Liz’s 45p cut all over again,” another added.
With the economy performing slightly better than expected, Hunt had £22bn for higher spending and tax breaks. But he left himself with just £6bn of fiscal headroom – and little room for manoeuvre for a big income tax offer for voters ahead of the next election.
“We remain vigilant, and will not hesitate to take whatever steps are necessary for economic stability,” Hunt told MPs.
The stakes for the Tories could not be higher: if they cannot be the party of economic credibility with key voters – after a turbulent few years that have left most people feeling worse off – then it’s all over.
