Political Analysis From Alex Davies, Director At Higginson Strategy
Jeremy Hunt spent Sunday touring the television studios saying that he could not disclose any of his budget. Nonetheless, the contents have been widely briefed to the media and the Chancellor had no rabbit to pull from his hat today.
There seemed to be a gap at the end of his speech where he set out the invidious nature of taxing work through both income tax and national insurance. Hunt’s cadence built as if he would announce the abolition of NI, but in the end a 2p cut to employee rates was all that was on offer.
It was additionally striking quite how much of the substance was about extending temporary tax reliefs for short periods of time. Alcohol duty is to be frozen for a further 11 months to February 2025. The temporary 5p cut to fuel duty will be extended until March 2025.
The political reality based on present polling is that these cliff edges will then be a problem for a new Labour government to sort out. Will Chancellor Rachel Reeves make one of her first acts in office a hike in alcohol and fuel duty? Probably not.
But that begs the question of where the money will come from to pay for improvements to public services Labour say they want to make. Debt to GDP ratio today is at 100 percent, a stark contrast to when Labour last took office in 1997, when the ratio was around 45 percent, leaving very little wriggle room for an incoming administration.
The government has balanced its books primarily by forecasting elusive ‘productivity gains’ in public services. Realising these gains in future years will be key to whether the tax cuts the Chancellor announced will really be affordable.
Meanwhile, to help SMEs the Chancellor announced a rise in the threshold for VAT registration from £85,000 to £90,000 – the first such rise for seven years. However, had that rise taken inflation into account, the threshold would be some £108,000.
Personal allowances and the higher rate threshold for income tax remain frozen until 2028, unless a new Chancellor reverses that decision later this year. The effect is to drag ever greater numbers of people into paying income tax and into paying the higher rate.
Labour will be celebrating having won the argument for abolishing ‘non-dom’ status, which permits UK residents to be domiciled for tax purposes elsewhere. The Chancellor’s chosen method of doing this will net £1bn for the Treasury once it takes place, and £2.7bn annually once it is entrenched.
The pre-election nature of the budget was underlined by continual name-checking by Jeremy Hunt of parliamentary colleagues who had lobbied him for particular measures. Each will get a friendly local press release for their own constituency out of today’s events.
Hunt’s speech also sought to draw and harden the dividing lines between the Conservatives and Labour. The former’s refrain is that the latter has ‘no plan’ for the economy or anything else – a product of the strategy the Labour Party is pursuing of saying as little as possible ahead of the general election.
It was notable that Hunt also made reference to a councillor and a pub in his constituency of Godalming and Ash. On a particularly bad day for the Conservatives, he could lose his own seat to the Liberal Democrats there.
Alive to renewed threat from the Lib Dems’ targeted efforts on so-called ‘blue wall’ seats, Hunt took the opportunity to accuse party leader Ed Davey of lacking ‘principle’. That the Chancellor is choosing to attack rather than ignore the party will be taken as a compliment in Liberal Democrat HQ.
Nonetheless, both major opposition parties now have a task on their hands to produce a clear, alternative prospectus for managing a weak economic picture after this year’s election.