AS Jeremy Hunt and his Treasury team prepare Wednesday’s Budget, they are juggling with three sets of considerations.
The first is economic, including the impact that fiscal decisions have on everything from interest rates and share prices to public services, corporate investment and the value of the pound sterling.
The harsh reality facing the Chancellor is that the British economy is bumping along in the recession zone and shows only the weakest signs of recovery. Having dipped into recession in the last half of 2023, most forecasters predict a modest growth rate of between 0.5 and 0.7 per cent this year, before doubling in 2025.
This latter forecast could turn out to be yet another case of the “jam tomorrow” that never arrives.
Yet Hunt is relying on these growth levels to raise an extra £13bn a year in tax revenues. Already, the Office for Budget Responsibility (OBR) is scaling down this estimate last November of Hunt’s “headroom” for tax cuts, extra spending or lower borrowing, perhaps to as little as £7bn.
That’s chicken feed, about 0.7 per cent of total public-sector spending in the 2023-24 financial year.
Which brings us to the second set of considerations. These are political.
This will be the final Budget before a general election. Hunt and his fellow Conservatives — and not least the Prime Minister — are desperate to save as many of their skins as possible.
They hope that a package of tax cuts will buy off an electorate that has had enough of crumbling public services, rocketing energy prices and Tory sleaze and corruption.
So there may be pledges of extra cash for the NHS and local services as well as for the military.
Cuts in the basic rates of income tax and National Insurance are being floated but low-income households would benefit more from lower taxes on their purchases. Without price controls, however, nothing prevents big business from pocketing the difference.
There are rumours of a struggle between 10 and 11 Downing Street over the size of the tax bung. Rishi Sunak is a more devout neoliberal than Jeremy Hunt and wants the biggest one possible.
Where not funded by economic growth, tax cuts and selective spending increases could be funded by higher purchase taxes and duties, although this is hardly a vote winner.
To appease the Prime Minister, the Chancellor is considering ending “non-dom” tax privileges for wealthy overseas citizens who live in Britain. Rumours claim that he is even looking at a “windfall tax” on oil and gas mega-profits.
A riskier option would be to switch money from capital to current expenditure and borrowing to fill the gap (thereby adding to last year’s £83bn in interest payments on central government debt). Current and capital spending programmes can then be slashed after the election.
Hunt’s third consideration is that he does not want to end his term in office — and his ambition to lead the Tory Party — by making unfunded tax cuts or anti-big business tax hikes that incite a City of London lynch mob.
The corpse of his predecessor Kwasi Kwarteng dangles before him.
In any event, next Wednesday’s Budget will do nothing substantial to address the underlying, structural problems of the British economy: a bloated and parasitic finance and property sector, the renewed export and reinvestment of capital overseas, rampant profiteering and gross underinvestment in the privatised industries, no regional development policy and the concentration of government-funded R&D in the corrupt and hugely subsidised armaments industry.
