Wednesday will see the last budget before the next general election (but in reality, expect another ‘fiscal event’ in early July or early September). This should be an opportunity for the Chancellor to set the direction for the future of the UK economy but in a general election year you can expect a mixture of financial goodies for the electorate and fiscal beartraps for the Opposition.
Firstly, the economics. Following the Kwasi-Truss Month of Madness, it is now politically and economically impossible for the Chancellor to deliver a budget/Autumn Statement/fiscal event without engaging with the Office of Budget Responsibility. The risk to financial stability in the markets is simply too great. OBR forecasts are not too good and this will limit the size of any tax cut Jeremy Hunt may have planned.
Politically, Tory MPs will be after Hunt’s blood if they don’t see some kind of tax cut next week so expect to see changes to employee NI contributions or possibly a small basic income tax cut if the Chancellor can find the cash down the back of the Treasury’s sofa. But this is largely a pointless exercise as any tax cuts now will be clawed back by whoever occupies HMT next and has to deal with the nation’s finances. Whilst this may keep the Tory MPs and parts of the media at bay for a while, tax cuts of this size are unlikely to be felt by the millions of voters who are facing a cost of living crisis and looking for someone to blame. Warnings in this morning’s papers by the Joseph Rowntree Foundation that tax cuts risk condemning the UK to a “second ‘lost decade’” and leaving working families £1,900 worse off a year, will not have made welcome reading for the Chancellor.
With a general election looming, Hunt will want to spike Labour’s guns so he could choose to allocate extra funding to the NHS, but will this be enough to have an impact on waiting lists before the general election? With Labour using the scrapping of non-dom tax status to fund every policy from supervised teeth-brushing to free breakfast-clubs to unicorns for all (just kidding on the last one), Hunt has floated the idea of altering non-dom status and allocating the cash elsewhere to remove a major Labour revenue-raiser. One to keep an eye on.
Other areas that could damage Labour and lead to improved economic growth forecasts (and therefore more theoretical money for Hunt to spend) could be via stamp duty changes to loosen the housing market, or in childcare to create much-needed additional staff spaces ahead of the new entitlements coming in April. A cut to inheritance tax now seems unlikely but a commitment to a gradual future reduction is feasible, even if the political gain from such a divisive move is unclear.
Hunt and Sunak may be natural optimists, but they are also political realists who will know that they likely only have a matter of months left at the top of government. So, you can expect additional tax on cigarettes and vapes as part of Sunak’s anti-smoking drive, and there could be additional funding for the next generation of maths teachers – another Sunak passion project.
A week may be a long time in politics but it’s certainly not long enough to influence this budget.