In the end, Jeremy Hunt had a bad hand and played it the best he could. Despite loading up with £10bn of tax cuts and some measures to boost growth, this year’s Budget is already sliding away, with political minds turning to what may prove to be the more decisive fiscal event: a pre-election Budget.
Some assumed this week would mark the Chancellor’s final decree on tax and spend, but it’s now likely he will be returning to the dispatch box in the coming months to do it all again. Lucky us.
If another fiscal event is in the offing before the election, it should not simply repeat what we’ve just seen. The latest tax cuts may be sensible ones – national insurance (NI) is preferable to slashing income tax, although more complicated to explain – but the clamour from right-leaning Conservatives for more and deeper cuts will only grow louder. After Hunt has taken a little breather, he should think carefully about what is going to be most appealing to the country in arguing for a fifth term in office.
If this week’s Budget was seen as very political – to cause the Labour opposition the greatest headaches during the heat of an election campaign – the next one will only be more so. Whatever Hunt and Rishi Sunak announce, they will be doing beyond the wants and desires of Tory MPs. What will help is that the economy is likely to be in better health later this year, which will offer more options to win round undecided voters.
By far the most important news in this week’s Budget was the inflation projections. When Sunak entered office, it was running at 11 per cent – a rate unseen since the 70s – mostly due to the legacy of the pandemic and the war in Ukraine. Now it is down to 4 per cent and the latest projections have it hitting the Bank of England’s 2 per cent target by the autumn. As well as supporting the Government’s narrative of being on “the right path”, it will give the country a sustained period of wages outpacing inflation. That will go some way to giving a sense that things are on the up.
If this holds, Hunt will look to more tax cuts to continue his argument that “lower-taxed economies have more energy, more dynamism and more innovation”. Could he scrap national insurance altogether? On the surface, it’s a beguiling idea – it’s a tax on work, and it’s working-age people who have been the worst hit since the 2008 crisis, while pensioners have mostly been protected.
Shifting the burden of tax away from NI is one way of improving intergenerational fairness, but scrapping it would cost in the region of £46bn, a considerable hit to the Treasury’s coffers. As the Chancellor himself suggested, it may prove to be more of a longer-term ambition than an immediate aspiration for this year.
In the absence of this, the next Budget would do well to return to income tax. In the Tory leadership race in the summer of 2022, Sunak pledged to cut the basic rate by 1p – and do so again on a downward escalator until it reaches 16p by the end of the decade. He made the pledge to echo the memories of Nigel Lawson’s great tax-cutting Budgets of the 80s, with a clarity that makes it easy to sell on the doorstep. It may not be as fair as reforming national insurance, but it is cheaper and would be welcomed by Tory activists on the doorstep.
The other measure that Hunt should revisit is the higher-rate child benefit charge, for which he raised the cut-off threshold from £60,000 to £80,000 this week. For middle-income families, this is great news, but he should go so much further. The Chancellor has pledged longer-term technical reforms to remodel taxation around households. But if the finances allow it, the higher-income charge should be scrapped altogether – now. There would be no greater sign that Hunt and Sunak are on the side of families (cost, in the region of £3bn).
There are two other areas that should be examined. One is the high marginal rate of tax faced by graduates, especially those facing eye-watering repayments on student loans due to interest rates. Hunt should also think about expanding capital investment allowances. Neither comes across as particularly sexy, but they are important for helping with the cost of living and boosting investment.
But what Hunt should not do is make the next Budget all about tax. What was missing from this week’s event was a major offer on housing that will be critical for any hope of reviving the party’s fortunes. Come the election, the Tories need to have something substantial to say for getting people on the property ladder, by reforming stamp duty and the level it has to be paid. Younger voters are never going even to consider voting Conservative if they are not offered a path to a greater stake in society.
If all the chatter about a May election proves overwrought, the rhythm of the months ahead is clear. The more upbeat economic message is apparent: inflation will fall, growth will pick up, unemployment will remain low and interest rates will be cut. That creates the certainty the Treasury can use for a bold but balanced fiscal event. Contrast this with Labour, who are now scrabbling around to find a plan to fill the hole in the balance sheet left by scrapping non-dom status, and the election dividing lines are clear.
Sebastian Payne is the director of the centre right think tank Onward and writes a weekly column for i on policy and politics. He was previously a journalist at the Financial Times, The Spectator and The Washington Post, and is the author of two books, Broken Heartlands and The Fall of Boris Johnson
Cutting taxes won't woo young Tory voters
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0
07.03.2024
In the end, Jeremy Hunt had a bad hand and played it the best he could. Despite loading up with £10bn of tax cuts and some measures to boost growth, this year’s Budget is already sliding away, with political minds turning to what may prove to be the more decisive fiscal event: a pre-election Budget.
Some assumed this week would mark the Chancellor’s final decree on tax and spend, but it’s now likely he will be returning to the dispatch box in the coming months to do it all again. Lucky us.
If another fiscal event is in the offing before the election, it should not simply repeat what we’ve just seen. The latest tax cuts may be sensible ones – national insurance (NI) is preferable to slashing income tax, although more complicated to explain – but the clamour from right-leaning Conservatives for more and deeper cuts will only grow louder. After Hunt has taken a little breather, he should think carefully about what is going to be most appealing to the country in arguing for a fifth term in office.
If this week’s Budget was seen as very political – to cause the Labour opposition the greatest headaches during the heat of an election campaign – the next one will only be more so. Whatever Hunt and Rishi Sunak announce, they will be doing beyond the wants and desires of Tory MPs. What will help is that the economy is likely to be in better health later this........
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