November 22, 2023 - 4:00pm
Chancellors must chart a fine line between popularity and realism. This is even more intensely true with elections on the horizon. Giveaways are popular and so are spending increases, but get the balance wrong and it only leads to unsustainable public finances — and the sort of market reaction which undid Liz Truss just a year ago. Jeremy Hunt had to pick his bribes carefully in his Autumn Statement, finding a way to keep voters, backbenchers and the economy as happy as possible.
Hunt had one advantage, with economic forecasts giving him around £20 billion of headroom to play with, largely as the result of inflation pushing up tax receipts. Seeing where he spent it was a good sign of where the Chancellor thought the votes might be. Unlike Truss, the answer wasn’t largesse for the rich. The lobbied-for cut in inheritance tax never materialised, with Hunt favouring breaks for the average worker instead.
The biggest of these has been a cut to National Insurance. It’s a canny move which puts money back into the pockets of the sort of middle earners the Tory Party has lost through mortgage rises and the cost-of-living crisis. It’s also harder for the opposition to score political points against. Whether it is enough in people’s pockets to move the electoral dial is another question entirely.
This, along with the maintenance of the triple lock and cuts to business taxes were obvious appeals to the core Tory vote. As were proposed harsh measures against long-term benefits claimants. But in splurging, rather than banking, the headroom he’s gained, Hunt has put electability over long-term stability. Sneaked through in the speech was a long-term cash freeze in investment spending. Combined with inflation, this means an effective cut.
Investment spending is one of those things politicians like to talk about more than do. It lays the foundations for better productivity, whether it’s used to fund streamlining projects or upgrade assets. Yet it’s the hardest cut to notice, which makes it the easiest one to affect. After more than a decade of the Tories doing it, however, the limits are being stretched.
Literal cracks are beginning to show, in the case of public buildings affected by the aerated concrete scandal. Rail and road networks are showing the strain from under-investment and services are gradually degrading, despite the tax burden being near an all-time peak. Tax cuts and day-to-day spending sprees today only punt this problem into the future.
This was billed as a “budget for growth”, yet while the Chancellor incentivised businesses to invest (via the changes to expensing of capital spending) he recoiled from it. By effectively decreasing capital investment, today’s budget takes priority over those of the future, deferring costs and likely increasing them. With the OBR downgrading future growth projections, it’s unclear if this money could be recouped in future — instead meaning a vicious cycle of plugging holes in today’s budget at the expense of future revenues.
Hunt will be happy with a statement that has offered some sops to Tory voters, policy wonks and backbenchers. The markets are unlikely to implode, and the Government will carry on to the next election. It might even pick up a few more votes — but underneath all this, the investment crisis will be bubbling away, creating more problems for future governments of any political colour.
John Oxley is a corporate strategist and political commentator. His Substack is Joxley Writes.
Mr_John_Oxley
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Subscribe“Unlike Truss, the answer wasn’t largesse for the rich”
Just to enlighten the ignorance of the Author; Truss and Kwarteng’s mini-budget instituted a 1% reduction in the basic rate of income tax and a reduction of National Insurance contributions of 1.25 percentage points.
The Author apparently doesn’t understand that Corporation Tax is a tax on jobs, investment and successfully providing the goods and services consumers’ demand. Truss would have kept Corporation Tax at an internationally competitive rate of 19% instead of the investment and job killing 25% rate now inflicted on businesses.
Slashing the triple lock would have been electoral suicide. Even though this piece of pork is long term financial poison.
Tim to cook the official figures to go “under the lock level”.
M
The honouring of the Triple Lock is good news, and so what that it is electioneering? But only England has prescription charges, so only here will the poorest people, two out of five of them in work, have to spend 10 per cent of a week’s income on a prescription. How is that supposed to find jobs for the other three in five Universal Credit claimants?
Across the United Kingdom, all previous “crackdowns” on the supposedly lead-swinging disabled have failed, but not before having killed hundreds of thousands of people. The Department for Work and Pensions already spends far more on contesting largely successful appeals than it would cost just to pay the benefits in the first place. That is about to get even worse, and at the most horrific human cost as well. How is any of this supposed to find anyone a job? Then again, in the words of Rishi Sunak, “Let people die.”
Meanwhile, the increase in the minimum wage will be largely eaten up by National Insurance, even after today, and by income tax, the threshold for which remains frozen. By 2028-2029, the frozen tax thresholds will cause four million more people to pay income tax, and 400,000 more to pay the 45p rate, while VAT and corporation tax will rise from 6.4 per cent and 3.4 per cent of GDP this year, to 6.5 per cent and 3.6 per cent of GDP that year.
And for what? Real Gross Domestic Product per person will remain 0.6 per cent below its pre-pandemic peak, to which it will not return before 2025. For all the talk of giving businesses incentives to invest, why would they do so when potential consumers’ real incomes were down? Where is the incentive there? Accordingly, the economy is expected to grow by only 0.6 per cent in 2023, and by only 0.7 per cent in 2024.
Yet what are we offered instead? Keir Starmer, Rachel Reeves, Wes Streeting, Liz Kendall, Darren Jones, and all the rest of those who think that none of this goes far enough. They idolise the last Labour Government, in which Yvette Cooper introduced the intentionally mass murdering Work Capability Assessment, and which effected the biggest upward redistribution of wealth in British history. Labour is now the greater evil, worse than the Tories. We should no more want Labour to win the next General Election than most of its MPs wanted it to win the last two, or than any of its staff wanted it to win the last four.
Why is the honouring of the triple lock good news? Pensioners are on average the wealthiest cohort, and the millennials onwards are forecast to die poorer than their parents. With so many others struggling with the day to day cost of living, why is ensuring a benefit rises faster than inflation or wages a priority?
I agree with the rest of your comment however
Half of your post is an unintentional explanation of the things you are whining about in the other half.