It was only four months ago that Chancellor Hunt cut National Insurance by 2p in a move intended to placate his right wing and pave the way for electoral recovery. In the weeks that followed, the polls barely flickered, it became clear that the tax burden had risen to pay for a headline cut, and Britain slipped into recession.
Today he repeated the trick with another 2p cut in NI, paid for with some tinkering and a ‘fox shooting’ abolition of non-Dom status (a key Labour proposal). There is a danger here that with the priority of achieving a tax cut there is too little strategic thinking around the tax rises risking an unravelling in scrutiny. According to the OBR, tax as a proportion of GDP remains at an 80 year high.
It is a shame that the only measure that seems to matter to the government is whether the Budget will shore up the Tory vote or at least wrong foot the next Labour Chancellor. Because the reality is that tax cuts and investment into public services (which voters currently prioritise) would be more deliverable were we enjoying stronger, or any, economic growth.
Unfortunately Britain has endured more than a decade of near stagnation, weak output, and low productivity growth. And while there are elements of this environment that economists debate, there is undoubtedly political failure at its heart. Politics has been inward-looking and self-serving for at least 8 years. Jumping from one populist notion to the next, the uncertainty has not been conducive to business. Brexit has damaged the economy and there has been an absence of economic strategy to drive investment. And this is perhaps one reason that Hunt acts more like a Chancellor in a new administration than one grappling with the mess of his own party’s creation at the fag-end of a Parliament.
The excitement in the Chamber and the rhetorical flair told us this was a pre-election Budget. Nevertheless, this is a small Budget in content without a commanding set piece. It is more like a mid-term event than the triumphant culmination of a sound economic strategy. Hunt lacked the economic growth, the income and leeway within his self-imposed rules to do much else. It is not the Budget that his already mutinous backbenchers really wanted, so many of whom will be out of a job before the year is out.
It is within that ‘mid-term Budget’ that some of the more interesting announcements can be found. Funding for medical research and technology, green industries, and house building. Elsewhere there is a new British ISA to strengthen investment in UK companies.
This will be little consolation for Tory MPs and their cheerleaders in the press, convinced that tax cuts are the political panacea for their unpopularity. With polling showing the government as unpopular as the moment Liz Truss and Kwasi Kwatang crashed the economy, there is no obvious route back. And it’s alarming that a hardcore group thinks the answer is to repeat this catastrophic plan.
What does this mean for the timing of the election? One school of thought says that if Sunak pushes it to the back end of the year, there might just be time for one more fiscal event In the Autumn Statement to buy back voters as the economy improves. But with the knives out the PM could try to head off the bloodshed with an early poll in May. He will probably try to cling on, but only time will tell.