The Chancellor delivered a great Budget – the pressure is now on Labour
4 min read
Jeremy Hunt’s Budget reminded me of my own in 1992, delivered on the very eve of an election being called. Both of us faced the pressure of high but unrealistic expectations.
In the event Jeremy Hunt did extremely well, producing a responsible Budget that was also politically astute.
He had little scope for giveaways after the OBR had revised the available headroom sharply down. So the Chancellor did well to announce two pence off National Insurance contributions (NIC) for the second time in a year. This was not insignificant when combined with the previous reduction, while some Conservative MPs would’ve preferred a penny off income tax that would have cost significantly more.
After the NIC reductions he had little left, but managed to announce an extension of child benefit, child care provision and more levelling up measures.
Stealing Labour’s clothes... leaves them somewhat immodestly dressed
Consequently, he was driven to finding more revenue by stealing Labour’s clothes and abolishing the current tax regime for non-doms. He revealed that Nigel Lawson, the great tax cutting chancellor, had also wanted to abolish the concept of “domicile”. But stealing Labour’s clothes inevitably leaves them somewhat immodestly dressed.
What was conspicuously absent from the Budget were significant increases in departmental spending. The increases for total spending were left at one per cent per annum in real terms, the same as in the Autumn Statement. Critics might say the Chancellor’s tax cuts depended on unrealistic spending plans.
To the latter point, the Chancellor would reply: what we need is a more productive state. He pointed out that productivity in the private sector is now above its pre-pandemic levels, but in the public sector is still below. He said the public are fed up with extra spending funded by the taxpayer, producing no improvement in services.
An important innovation that was announced was a productivity plan for public services including the NHS. The Chancellor decided to give the NHS £3.4bn but specifically for improving productivity. This included widespread digitisation which could produce an extra 200,000 operations a year. The plan could unlock savings worth 10 times the cost – that is £35bn more. This was confirmed by the OBR who said that a five per cent increase across the public sector in productivity would be equivalent to £20bn extra funding.
All this sounds like a genuinely serious attempt to come to grips with the problem of inefficiency in the public sector. The Chancellor deserves great credit for addressing it.
Hunt has also delivered a Budget that squares with his own fiscal rules and has been validated by the OBR. Conservative MPs may be fed up with the OBR but it does add credibility to the government. We learned in the Truss premiership that it cannot be ignored.
As the Chancellor said, the government’s strategy is working. Inflation has more than halved and is set to meet the Bank’s target early this year. There must be a good chance of interest rate reductions.
Growth may be low compared with the past but it is low throughout Europe. Everyone faces the same issues and Britain is doing better than the major EU countries.
The Chancellor is not a magician. He is only the Chancellor. He can’t immediately change the political weather by snapping his fingers. But he has delivered a Budget that begins to reverse the unavoidable tax increases made necessary by Covid and the energy price hikes.
By sticking to tight public spending while announcing tax cuts, the Chancellor has issued a challenge to Labour and pointed to the argument for the general election. Labour have ruled out tax rises, but if they’re going to increase spending on the NHS, housing and education, where are they going to find the money?
They either have to accept the government spending plans which they attack as inadequate, or increase taxation. That is their dilemma.
Lord Lamont, Conservative peer and former chancellor
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